United Kingdom: Unemployment rate hits fresh multi-decade low in April-June, but wage growth continues to moderate
August 14, 2018
In the April-June period the unemployment rate fell to 4.0%, down from 4.2% in March-May and marking the lowest rate since 1975. The unemployment rate is now below the Central Bank’s estimate for the equilibrium unemployment rate of 4.25%. The economy added 42,000 jobs compared to January-March, thanks to a large increase in full-time positions offsetting a fall in part-time work.
Despite the tightening labor market and growing signs of worker shortages, nominal earnings growth excluding bonuses lost steam in April-June, coming in at 2.7% (March-May: +2.8% year-on-year). Real earnings continued to rise—albeit at a limp pace—but average total pay in real terms was still below the pre-crisis peak reached in 2008.
Looking ahead, employment growth should stay solid—particularly in the near term given that the number of vacancies is currently at an all-time high. As a result, the unemployment rate should remain low. Regarding wages, the Central Bank expects nominal earnings growth excluding bonuses to remain at roughly its current level in H2. Looking further ahead, the tight labor market and faster public-sector pay rises should begin to lift earnings growth slightly.
UK Unemployment Rate Forecast
Last month, our panelists expected the unemployment rate to average 4.3% in 2018 and 4.5% in 2019. Our panelists are currently assessing the latest developments, and a new Consensus Forecast will be published on 28 August.
Author: Oliver Reynolds, Economist