UK unemployment falls but wage growth slows

The Office for National Statistics said unemployment fell by 121,000 in the three months to May to stand at 2.1 million, or 6.5% of the workforce. The number of people out of work has fallen by 15% in the past year, the ONS said, a reflection of rapid economic growth.

But earnings are barely growing. Average weekly earnings excluding bonus payments rose at an annual pace of just 0.7% in the three months to May, the slowest pace of growth since comparable records began in 2001, the ONS said. Including bonuses, which were higher in the same period last year, average earnings grew an even more feeble 0.3%.

Central bank officials led by Gov. Mark Carney have signalled they wish to see stronger growth in Britons' incomes before they will consider raising interest rates, which have been pinned near zero since March 2009.

Market participants expect a rate increase early next year but continued weakness in pay growth may encourage BOE officials to delay tightening policy until they are more confident that Britons can afford higher borrowing costs.

Earnings are growing so slowly they are being outpaced by inflation, which rose at an annual rate of 1.9% in June. That squeeze on incomes is shaping up to be a key battleground in a general election scheduled for May.

ONS data shows more Britons were in work than ever before in May, with total employment rising to 30.6 million, or 73.1% of the workforce, the highest rate recorded since records began in 1971.

BOE officials fret that the overall jobless figures are masking pockets of slack in the labor market that are bearing down on wages and inflation.

For example, ONS data shows the number of self-employed people in the U.K., some of whom may wish to work longer hours or find work with an employer, was 1.4 million in May, the highest number since records began in 1992. The rise in self- employment also reflects workers delaying retirement and other longer-term trends in the labor market, economists say.

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