UK unemployment rate improves but recent data shows weakness

The UK's official unemployment rate has improved to 4.9% by the end of May, according to the Office for National Statistics, with average weekly earnings rising 2.3% as expected.

More recent data contained in Wednesday's report revealed signs of weakness emerging, with the claimant count rising 12,200 month-to-month in May and by a further 400 in June, while the three-month average level of job vacancies fell in June to its lowest level since November.

For the three months to May, the headline ILO unemployment rate fell to 4.90%, down from the 5% in April and 5.1% in February and beating the 5% consensus estimate from economists.

With 31.70m people working full and part-time, this was an increase of 176,000 people in the three-month period compared to the three months to February 2016 and 624,000 more than for a year earlier. There were 23.19m people working full-time at the end of May, 401,000 more than for a year earlier.

The employment rate, which counts the proportion of people aged from 16 to 64 who were in work, was 74.4%, the highest since comparable records began in 1971.

“The labour market continued to strengthen in spring 2016, with record employment and the unemployment rate at its lowest since 2005," said ONS statistician Nick Palmer, though he stressed "None of today’s headline figures cover the period since the result of the EU referendum became known.”

The UK claimant count rate for June, which measures the number of people claiming unemployment related benefits, remained at 2.20%, as expected, while the jobless claims improved slightly more than predicted.

UK average weekly earnings for the three months to May were 2.30% higher, as expected, compared with a year earlier and 2.2% higher excluding bonuses, which was short of the forecast 2.3%.

While the labour market continued to strengthen in the months prior to the 23 June EU referendum, economist Sam Tombs at Pantheon Macroeconomics said the resilience won’t last.

He said he expects employment growth to ease sharply in coming months as the surge in employment "partly reflected a cohort which had consistent reportedly a below-average employment rate leaving the sample", with surveys of employers’ hiring plans weakening sharply in the run-up to the referendum and likely have deteriorated further since the vote.

Pointing to the timelier claimant count data showing "signs of weakness" in the pre-referendum period, Tombs added: "The tendency for the labour market to lag the economy also means that the referendum’s impact will take several months to emerge."

"Meanwhile, the further pick-up in wage growth—well above the prevailing rates of productivity growth and inflation—underlines that the labour market was tight earlier this year. Rising unemployment and falling job vacancies, however, likely will ensure that wage growth does not respond fully to the looming pick-up in inflation."

As of 1010 BST the pound was up by 0.36% against the dollar to 1.3158 after having earlier hit a high at 1.3167, while the yield on the benchmark 10-year Gilt was flat at 0.801%.