(Bloomberg) -- UK unemployment fell unexpectedly to the lowest since 1974 as people dropped out of the workforce at a record rate.
The government said 3.5% of adults were looking for work in the three months through August, down from 3.6% the month before and a rate last lower in 1974. Economists had expected no change.
The figures add to concerns about labor shortages, which are making it harder for companies to find the staff they need to expand. It’s also fanning wage increases and inflation, which the Bank of England has vowed to fight with higher interest rates.
“The UK is facing the tightest labor market in years,” said David Bharier, head of research at the British Chambers of Commerce. “Shortages are holding back the ability of many businesses to service existing customers and grow.”
The pound weakened as much as 0.5% to $1.0998 after the report, reflecting broader concerns among investors about the health of the UK public finances.
Chancellor of the Exchequer Kwasi Kwarteng hailed the figures as indicating strength in the UK.
“The fundamentals of the UK economy remain resilient, with unemployment at its lowest point for almost 50 years,” Kwarteng said in a statement.
What Bloomberg Economics Says ...
“Another strong month of jobs data and another pick up in wage growth gives the Bank of England further cover to deliver a jumbo hike in November. But it’s likely to be the government’s medium-term fiscal plan, due Oct. 31, rather than the slew of data releases over the next few weeks, that determines the exact size of the move.”
--Ana Luis Andrade, Bloomberg Economics. Click for the REACT.
Average earnings growth excluding bonuses accelerated to 5.4%, the Office for National Statistics figures show. That’s still little more than half the rate of inflation, meaning a sharp squeeze in living standards for millions of households. Real wages are down almost 3% on the year.
The gap between private and public-sector workers widened further. The record 4.1 percentage point gulf is sure to escalate calls for strikes over the rising cost of living.
Aggravating the 6.2% jump in private-sector wages is the loss of hundreds of thousands of workers since the pandemic began, and there are few signs that the cost-of-living crisis is prompting them to return.
Inactivity -- the count of people out of work and not looking for jobs -- rose by the strongest rate since data started in 1971. Some 252,000 became inactive in the latest three months, driven by a rise in long-term sickness among older workers to a record high and young people in education.
Economists expect only a gradual easing of labor market conditions, and there were some signs in the latest data. Vacancies fell by 46,000 in the third quarter, the biggest drop in more than two years. The number of people in work fell by 109,000.
Survey suggest the shift continued into September as employers and workers alike positioned themselves for a possible recession.
The Bank of England has raised interest rates seven times since September and money markets are pricing an aggressive 1 percentage-point increase when policy makers meet in November.
That will worsen the plight of consumers and businesses already struggling with near double-digit inflation.
(Updates with market reaction and comment.)
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