UK unemployment rate at 4-decade low, but pay growth still trails inflation

British workers saw their pay and bonus growth fall further behind inflation in the three months to end-May, data showed on Wednesday, but the jobless rate hit a 42-year low.

The reports will complicate the debate among Bank of England (BoE) officials over the need for higher interest rates.

Sterling bounced against the dollar after official figures showed the unemployment rate in the period between March and May fell to its lowest since 1975 at 4.5 per cent, below the average forecast of 4.6 per cent in a Reuters poll of economists.

But lacklustre wage growth showed the challenge facing Prime Minister Theresa May and her minority government, with growing signs that households are feeling the strain of rising prices since last year's Brexit vote.

The Office for National Statistics said pay including bonuses, adjusted for inflation, fell 0.7 per cent in the three months to May compared with a year earlier — the sharpest drop since mid-2014.

In nominal terms, total earnings rose by an annual 1.8 percent, the weakest increase since the three months to November 2014 and compared with 2.1 per cent in the period to April. This was in line with the Reuters poll consensus.

Inflation hit an almost four-year high of 2.9 per cent in May, official data showed last month, a bigger increase than economists had expected.

After BoE Deputy Governor Ben Broadbent signalled his reluctance to raise interest rates in an interview published on Wednesday, the latest figures broadly confirmed policymakers' existing views of the labour market.
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