UK unemployment rate falls to lowest since 2005

The UK unemployment rate unexpectedly fell to 5.0% in the three months to the end of April, the lowest since 2005, but while the rate of job creation slowed, wage growth accelerated thanks the higher minimum wage.

According to the Office for National Statistics, which produced the figures, this was better than the consensus forecasts that had pointed to a continuation of the previous 5.1% rate.

A record 31.6m people were in work for the three-month period, thanks to an increase of 55,000 from the preceding three months, with 23.1m of them working full-time.

However, this gain is well below levels seen at the start of 2016 and during 2015.

The employment rate, or the proportion of 16-64-year-olds working, hit 74.2%, the joint highest since records began in 1971.

Growth in basic wages also surprisingly improved, rising to 2.3% from 2.2% in the first quarter when economists had expected it to fall to 2%.

Basic wage growth in April alone was 2.5%, surging up from 1.9% in March thanks to the introduction of the new National Living Wage.

In light of the muted UK growth so far in 2016, Brexit uncertainties and the new minimum wage, economist Howard Archer at IHS Global Insight said the labour market was proving fairly resilient given the strong headwinds facing it.

"Nevertheless, job creation has slowed compared to the start of the year and much of 2015," he noted, though the acceleration in earnings growth was welcome news for consumers and the Bank of England.

"While decent, the labour market data will likely do little to dilute belief that any interest rate hike by the Bank of England is likely to remain off the table for some considerable time to come – even if there is a vote to remain in the EU in next Thursday's referendum. And if there is a vote to leave the EU, the Bank of England’s most likely next move will be to cut interest rates from 0.50% to 0.25%."

Ruth Miller, an economist at Capital Economics, said the solid figures should allay fears that uncertainty ahead of the referendum has significantly weighed on the economy in the second quarter.

But she added: “If this continues, and the UK votes to stay in the EU, a rate hike might come back on the agenda before too long.”

Also she noted that, delving below the surface, there was a less positive picture, with most of the rise in employment driven by growing self-employment rather than employees, "which may not be a good thing if it reflects people struggling to find jobs".