UK's unemployment hits 5-year low, pay growth matches inflation

LONDON - Britain's unemployment rate fell more than expected and pay growth caught up with inflation for the first time in nearly four years.

Sterling jumped and government debt prices fell after official statistics showed the unemployment rate sank to a five-year low of 6.9 per cent in the three months to February, down from 7.2 per cent in the three months to January.

That was below the 7 per cent level originally set by the Bank of England for considering an increase in interest rates. The Bank has since given fresh guidance about when it might start to tighten monetary conditions.

Economists in a Reuters poll had expected the unemployment rate to slow only to 7.1 per cent.

The Office for National Statistics said total pay growth picked up to 1.7 per cent in the three months to February. Consumer prices in the month of February also rose 1.7 per cent.

It was the first time since April 2010 that pay growth had not lagged consumer prices, the ONS said. Economists in the Reuters poll had expected pay to grow by 1.8 per cent.

In the month of February alone, total pay growth was 1.9 per cent, the ONS said.

And in another sign wages are starting to recover some of their value, in March the consumer price index slowed to 1.6 per cent, data released by ONS on Tuesday showed.

An end to the erosion of wages by inflation should help Britain's Conservative-led government, which has come under fire from the opposition Labour party for what it calls a cost of living crisis.

"These remain difficult times for families facing pressures on their budgets, and much work needs still to be done to build a resilient economy," chancellor of the exchequer George Osborne said in a statement. "But today's news supports the argument we have made all along that the only way to see rising living standards is to grow the economy."

Samuel Tombs, an economist with Capital Economics, said signs investment was picking up and a further easing of inflation meant real pay should begin to rise at a stronger pace soon, underpinning the broader economic recovery.

However, Britain still has a long way to go before the effects of the financial crisis are fixed fully. Independent budget forecasters have said earnings growth is likely to remain subdued and real hourly earnings are not likely to exceed pre-crisis levels until the end of 2016, more than eight years after the financial crisis began.

The ONS said on Wednesday the number of people claiming unemployment benefits fell by slightly more than expected, down by 30,400 to 1.142 million in March, its lowest level since November 2008.

The number of claimants in February was revised to show a fall of 37,000 from a previously reported decline of 34,600.

Britain's labour market staged a much stronger-than-expected recovery in 2013, wrong-footing the Bank, which said in August it would start to think about raising record low interest rates when unemployment fell to 7 per cent.

Under new guidance announced in February, the Bank has pointed to how much spare capacity there is in the economy as a way of assessing its plans for tightening borrowing conditions once unemployment hits the 7 per cent level.

The number of people in employment rose to a new record of 30.389 million, helped by a steady increase in the number of people who are registered as self-employed, which was also at a record high.

A separate survey published on Wednesday showed that more than a quarter of people who became self-employed in the last five years would prefer to be employed by someone else. The survey was conducted by polling firm Ipsos Mori for the Resolution Foundation, a think tank which focuses on the living standards of people in Britain on low and middle incomes.

Of the 4.5 million self-employed people in Britain, nearly 1.7 million have become self-employed since 2009, the think tank said, citing ONS data.