UK unemployment remains stable but 'cracks appearing' in jobs market

While the UK unemployment rate remained flat at 4.8% in October and wages spiked, more timely official figures on Wednesday showed a fall in the claimant count which led some economists to say that cracks were beginning to appear in the labour market.

The Office for National Statistics revealed the headline ILO unemployment rate stayed put in October despite a small quarterly fall of 6,000, the first fall since early last year and well short of the consensus estimate of a 50,000 rise.

Moreover, the November UK claimant count increased by 2,400, following the 13,000 jump in October to take the claimant count level of unemployment up to 809,000, which is the highest level since February 2015.

Numbers of vacancies dipped to 748,000 in the three months to November, which was down from 757,000 in the three months to October.

Wages were one upside, growing 2.6% in the three months from August, which was the most rapid rate since August last year as the rate increased from 2.5% including bonuses in September or from 2.4% excluding.

“The labour market appears to have flattened off in recent months," said ONS senior statistician David Freeman.

"While the employment rate remains high, it is slightly down on the record set recently. Meanwhile a small fall in unemployment on the quarter was more than offset by a rise in economic inactivity.”

Economist Howard Archer at IHS Markit said it was a softer report overall: "Cracks are beginning to appear in the labour market."

He said he suspected both the economy and the labour market will be "increasingly pressurised by mounting uncertainties" over Brexit in the coming months, and forecasts the unemployment rate starting to trend up before too long to reach around 5.5% by the end of 2017 and 5.9% by the end of 2018.

Capital Economics' Paul Hollingsworth said the ONS figures "revealed some clearer signs that the recent resilience is fading" and that while the wages rise was good news, earnings growth needed to gather more pace in order to match the rise in CPI inflation that he sees hitting 3% next year.

But he was sanguine about 2017 for employment: "Looking ahead, we don’t think that any further deterioration in the labour market will be particularly severe. After all, survey measures of employment intentions continue to point to positive (albeit weak) growth in employment over the next few months, and we remain more optimistic than most about the prospects for the economy over the next couple of years."

As a result, he forecast the unemployment rate will peak at about 5.5%, which he pointed out would still be low by past standards.