United Kingdom Unemployment August 2017

United Kingdom

United Kingdom: Unemployment rate remains at multi-decade low in the June-August period

October 18, 2017

Jobless claims rose by 1,700 in September according to the Office for National Statistics (ONS), compared to a revised drop of 200 in August (previously reported: -2,800) and coming in above analysts’ expectations of a more mild rise in the claimant count.

The unemployment rate—derived from a different survey—remained at 4.3% in the June-August period (the latest period for which data is available), matching market expectations and marking the joint-lowest rate since 1975. The UK labor market continues to defy the pessimists, and the unemployment rate remains below the Bank of England’s most recent estimate for the natural rate of unemployment of roughly 4.5%. The economic inactivity rate picked up slightly compared to the previous rolling 3-month period to 21.4%, but was still one of the lowest rates since comparable records began in 1971.

Despite a tight labor market, the pay squeeze shows no signs of diminishing. In the June-August period, total pay fell 0.3% compared to the same period last year, up only marginally from the 0.4% drop observed in the May-July period. As a result, average total pay still remains stubbornly below its 2008 peak, a disappointing showing considering that the economy has been growing for seven consecutive years. There are several likely factors at work; higher input costs and the cloud of political uncertainty surrounding Brexit could be making firms reluctant to raise wages. A more fundamental reason is likely poor labor productivity growth, which remains significantly below pre-crisis levels.

Consumers will continue to feel the pinch over the coming months, especially considering inflation picked up to 3.0% in September. In addition, further increases in inflation aren’t to be discounted before the end of the year, as firms continue to alter their prices in response to the weaker sterling. However, with slack in the labor market becoming limited, earnings should gradually pick up heading into 2018.

Last month, our panelists expected the unemployment rate to end 2018 at 4.7% and 2019 at 4.9%. Our panelists are currently taking the latest economic developments into account, with a new FocusEconomics Consensus Forecast to be published on 24 October.

Author:, Economist

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United Kingdom Unemployment Chart

UnitedKingdom Unemployment August 2017 2

Note: Three-month average of unemployment rate in %.
Source: Office for National Statistics (ONS).

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