UK unemployment falls to lowest rate since 1974

UK unemployment fell to its lowest rate since the early 1970s this summer even as the economy stalled, according to official data that will reinforce policymakers’ fears that labour shortages are fuelling inflation.

The Office for National Statistics said on Tuesday that the unemployment rate sank to 3.6 per cent in the three months to July, down 0.2 percentage points from the previous quarter and the lowest since 1974. The employment rate also fell by 0.2 percentage points, to 75.4 per cent.

But this was not because more people were in work. Instead, there was a new jump in the number of people who said they were not working because they were studying or had a long-term health condition — which took the economic inactivity rate up by 0.4 percentage points to 21.7 per cent, above its pre-pandemic level.

Andrew Bailey, the Bank of England governor, has warned that a shrinking workforce will make price and wage pressures more persistent, and the latest figures will bolster the case for the central bank to continue tightening monetary policy aggressively at a meeting next week for a decision delayed by the Queen’s death.

The data showed wage growth strengthened in the three months to July, with average total pay, including bonuses, 5.5 per cent higher than a year earlier.

But Yael Selfin, economist at KPMG, said this would be “little consolation to workers” whose pay packets were being squeezed by soaring inflation, with total pay down by 2.6 per cent in real terms and regular weekly earnings down by 2.8 per cent.

There were also signs that the downturn in the economy is starting to make employers more cautious about taking on new staff, with the number of vacancies falling to 1.26mn in the three months to August — still very high by historical standards, but the biggest drop since the early stages of the pandemic in 2020.