UK unemployment rate lowest since 1974; real wages keep falling

UK real wages continued to fall in July, while the jobless rate dipped to its lowest level since 1974 as more people dropped out of the workforce, according to figures released on Tuesday by the Office for National Statistics.

The unemployment rate fell to 3.6% in the three months to July from 3.8% in the previous quarter. Economists were expecting the rate to be unchanged.

The number of people in employment grew by 40,000 in the three-month period. This was the smallest increase since February and was well below consensus expectations for a 128,000 jump. The UK workforce remains 250,000 smaller than it was before the pandemic hit.

Meanwhile, total pay including bonuses rose 5.5% on the year, up from 5.2% and versus expectations of 5.4% growth. Regular pay grew 5.2%, up from 4.7% and compared to consensus expectations of 5.1% growth.

In real terms, however, total pay fell 2.6% and regular pay was down 2.8%.

Ruth Gregory, senior UK economist at Capital Economics, said "The further fall in the unemployment rate to a new multi-decade low of 3.6% in July together with the extra pick-up in wage growth will increase the pressure on the Bank of England to deliver another 50 basis point hike at the next policy meeting on 22nd September."

ING economist James Smith said that while the UK jobs numbers "don't look too bad" at a headline level, the drop in the unemployment rate was driven not by an increase in the number of people in employment, but primarily by another dramatic rise in those classified as inactive - that is neither in work nor actively seeking it.

"Alarmingly, the number of people classifying as not working due to long-term sickness is up by almost 400,000 since late 2019, and almost 150,000 in the last two months' worth of data alone. It’s hard to escape the conclusion that this is linked to the pressures in the NHS (National Health Service)," he said.