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Scots jobless figure falls as...

UK unemployment rises for first time in two years

unemploymentUK unemployment rose for the first time in two years, from 5.5% to 5.6% in the three months to May, suggesting the recovery has softened and dampening any likelihood of an early rise in interest rates. The total jobless now stands at 1.85 million, up 15,000 from the previous quarter.

The number in work declined by 67,000, the first quarterly fall since April 2013, and jobless claims rose by 7,000 having been expected to decline by between 4,000 and 25,000.

The ONS data also showed that the pace of pay rises continued to pick up.  Average weekly earnings including bonuses rose at an annual pace of 3.2% in the latest three month period, the fastest rate in five years.

Pay excluding bonuses rose by 2.8%, which was the strongest pace since February 2009.

Unemployment in Scotland fell by 0.5% to 5.5%. Scotland was the only country of the UK where unemployment fell. The figures for Scotland also show a 6-year low in youth unemployment – down 20,000 over the year – and the highest youth employment level since records began in 2002, up to 363,000.

Separate figures on the Scottish economy show overall growth, with expansions in the services, production and construction sectors. The Scottish Government statistics show the economy grew by 0.6% in the first three months of this year – the same growth rate as the last three months of 2014 and slightly above the UK growth rate of 0.4% over the same period.

Neil Carberry, CBI Director for Employment and Skills, said: “While it is disappointing to see that employment has fallen, this is largely due to reductions among those self-employed.

“This fall must be seen against the backdrop of strong employment growth since the end of 2013, so it is far too early to draw conclusions. Nevertheless, it offers a timely reminder of the importance of Government treading carefully in the labour market and protecting the flexibility that gives Britain a great record on jobs.”

James Sproule, Chief Economist at the Institute of Directors, said: “Today’s slight increase in the unemployment rate may have surprised economists and spooked policymakers, but there is more good news than bad in these latest figures.  Over the last few years, businesses have powered the recovery and created jobs at a record pace. Unemployment is now much lower than many expected, and people are moving from self-employment to full-time jobs at a healthy rate.

“As the economy strengthens, businesses are feeling more confident, and people are shifting into full-time work. For people who could only find part-time work or work for themselves in recent years, this is good news.

“Wages, stagnant for so long in the aftermath of the crisis, appear to have well and truly turned a corner, and real wage growth has naturally accelerated. With labour markets remaining tight, wages look set to continue growing through 2015. The key, however, is to ensure these wage rises are driven by corporate performance and productivity gains.”

Colin Borland, the Federation of Small Businesses’ (FSB) head of external affairs in Scotland, said: “Scotland’s encouraging job figures stand in contrast to the UK’s headline joblessness increase. Further Scottish job growth will require extra work to tap the potential of small enterprise.  What is not yet clear is how the various measures announced during the budget will impact future hiring decisions.”

Calum Bennie, savings expert at Scottish Friendly, said: “Following last week’s Budget, it’s back to earth with a bump for the Government. While only a small increase, the rise in unemployment demonstrates the fragility of the UK economy.

“The hype during the General Election campaign and the subsequent Budget may have given many the impression that the country was about to enter an economic golden age. The truth is, with low inflation, low interest rates and higher unemployment, the economy looks to have stalled, albeit temporarily.

“The Government may try to shift responsibility for the rise, but not without running the risk of seeing further increases in the future. For instance, the introduction of a £9 living wage, while admirable, may be too costly for many, often small, businesses forcing them to cut back on staff numbers. With SMEs employing just under one in three British workers, we may see things get worse before they get better.”

Brewin Dolphin’s group head of research, Guy Foster, said: “Forecasters were expecting rising employment and robust wage growth.  The pace of wage growth was slower than had been forecast but still the fastest since 2010.  More surprising, however, was the rise in unemployment.  The rate increased to 5.6%.

“This comes off the back of a surprising fall in core inflation yesterday and supports our view that, although the economy has reached approximate full employment, firms still have options to substitute labour for capital investment which has hitherto been conspicuously absent from the recovery.”

Mr Foster added: “The most obvious conclusion is that the goldilocks scenario of inflation that is not too hot and growth that is not too cold seems entrenched.  Wage growth is normalising and the decline in employment suggests that companies have options about how to increase capacity which is positive for margins.  At the same time the robust growth in real incomes continues to exert the kind of stimulus which quantitative easing has completely failed to achieve.

“When the discussion last surfaced about the UK raising before the US at the beginning of 2014 we did not think it was possible because real incomes were shrinking in the UK and growing (albeit hardly) in the US. This year we certainly see an interest rate hike in the autumn of this year as being possible.  The MPC are very keen to reload their interest rate gun to avoid having to rely on the uncertain impact of QE when the next slowdown comes.  However, the increasing interest rate sensitivity of the UK consumer means rates will rise very little when, and if, they do start hiking.

“Questions remain about the need for rate increases as the weakness of Asian growth and energy prices mean inflation will likely remain subdued. Being able to impose a single, tentative rise in November would be an early Christmas present for the MPC.”

He said inflationary pressure remains muted. “Wage growth has certainly picked up but the pace of growth is exaggerated by those year-on-year figures.  Our six month-on-six month annualised figures show the pace regular pay is stable.  The annual regular pay figures undershot expectations despite reaching their post-crisis fastest pace.”

Andy Scott, associate director of FX advisory services at foreign currency specialist, HiFX, said: “Sterling dropped back following employment data that was weaker than expected, raising questions about the strength of the economy.

“Any signs that job creation is slowing is likely to temper expectations of the recent wage growth continuing, and could therefore weaken the argument made by a couple of BoE members that rates will need to be increased soon.

“We’ll need to see how June’s employment figures look, but if unemployment starts to tick up or wage growth stalls, Mark Carney [BoE governor] may end up having to retract the comments  about a rate rise moving closer, just as he did had to do last year.”

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