The prospect of an August increase in interest rates from the Bank of England has loomed larger after the latest official figures showed that strong jobs growth had pushed the UK’s employment rate to a fresh record in the first three months of 2018.
Despite the slowest growth in more than five years, the Office for National Statistics said there were 32.34 million people in work in the first quarter of the year, an increase of 197,000 on the previous quarter and up by 396,000 on the first three months of 2017.
The UK’s employment rate rose by 0.4 points to 75.6% in the latest quarter, the highest since modern records began in 1971. A majority of jobs created were full-time posts.
City economists said the strong labour market increased the chances of growth being revised up from the ONS’s initial estimate of just 0.1% in the the first quarter of 2018 – its weakest since 2012.
But rising employment and almost stagnant output resulted in a fresh setback to productivity after a rise in the second half of 2017. Output per hour worked fell by 0.5% in the first three months of 2018 and has increased by just 0.2% a year since the financial crisis of 2008.
The ONS reported a mixed picture for wages. Growth in total pay in the first quarter of 2018 was up by 2.6% on a year earlier, slower than the annual rise of 2.8% recorded in the three months to February.
Regular pay – which excludes bonuses – was 2.9% up on a year ago, a slight increase from the 2.8% annual increase reported the previous month.
The ONS said that once inflation was taken into account, real regular pay was up by 0.4% on a year ago while total pay was flat.
Ministers seized on the evidence of job creation and an end to the squeeze on living standards as evidence that the economy had turned the corner after a tough 2017.
Philip Hammond said: “Growth in real wages means that people are starting to feel the benefit of more money in their pockets; another turning point as we build a stronger, fairer economy.”
“We can be proud of our record on jobs,” the chancellor added. “The unemployment rate is at its lowest in over 40 years and with our ‘national living wage’ we are making sure that the lowest-paid feel the benefit with an extra £2,000 a year. Now the focus has to be on ensuring that wages keep rising faster than inflation, so that living standards increase.”
Unemployment on the internationally agreed definition fell by 46,000 to 1.42 million between the fourth quarter of 2017 and the first quarter of 2018. The unemployment rate of 4.2% was the joint lowest since 1975.
Senior ONS statistician Matt Hughes said: “With employment up again in the three months to March, the rate has hit a new record, with unemployment remaining at its lowest rate since 1975.
“The growth in employment is still being driven by UK nationals, with a slight drop over the past year in the number of foreign workers. It’s important to remember, though, that this isn’t a measure of migration.”
James Smith, an economist at ING bank, said the strong labour market data made an August interest rate increase from the Bank of England more likely.
“As markets become increasingly sceptical about the prospects of a UK rate hike this year, the latest wage data could prompt a bit of a rethink.
“At 2.9%, earnings growth excluding bonuses is now running at the fastest rate since mid-2015 and will make the Bank of England more confident that their optimistic stance on wage growth is bearing fruit. Remember that survey evidence from Bank of England agents has been pointing to the best year for pay settlements since the crisis.”
