U.K. unemployment fell to 2.4 million between December and February to reach 6.9 percent, hitting a new five-year low, as pay growth and inflation grew by the same level for the first time in almost four years.
The unemployment rate's figure of 6.9 percent is significant as it is not just down by 0.3 percent from the previous three months to January, but it is also below the 7 percent level originally set by Bank of England (BoE) Governor Mark Carney last summer as the point when an interest rate hike would be considered. Carney has since abandoned that target, but the jobless figures remain closely watched.
The Office of National Statistics (ONS) also said that for the first time since April 2010 the pay growth rate did not fall behind the inflation rate.
Total pay growth rose to 1.7 percent in the three months to February while consumer prices rose by the same amount. Consumer prices did drop down to 1.6 percent year-on-year in March, their lowest point in four years, but the ONS figures on wage growth did not take into account the month of March.
However, in the month of February alone, pay growth stood at 1.9 percent.
A deep recession in the U.K. has seen living standards decline over the last six years.The growth in wages above inflation is also welcome news for Prime Minister David Cameron ahead of the May 2015 election, as the opposition Labour Party has made reducing the cost of living a key campaign message.
Marc Ostwald, a strategist at Monument Securities, said in a note that "Initial market reaction looks to be very much focused on that headline unemployment rate fall, but the MPC (Monetary Policy Committee of the BoE) will be looking far more closely at the breakdown."
Ostwald noted that while the employment rate rise was impressive, there was a 146,000 rise in self-employment and a 74,000 rise in part-time employment. "It certainly underscores the point that that the improvement in the labor market is as patchy and imbalanced as the growth picture," he wrote.
Commenting on the possible next moves from Carney and the BoE, ETX Capital Market Strategist Ishaq Siddiqi said, "It's very unlikely we will see any trigger of monetary tightening as the Bank continues to say that below 7 percent is not a trigger for an automatic hike in rates but the market will certainly now expect the BoE to offer further hints to when the Bank will consider monetary tightening.
"With inflation below 2 percent, the BoE are less inclined to act any time soon – expect no change to the status quo for now."