UK unemployment falls again to lowest since 1975, wage growth still lacklustre

Key Points
  • U.K. unemployment rate falls to 4.4 percent in second quarter - the lowest its been since 1975.
  • But inflation is still rising faster than wages.
  • Overall wage growth in real terms fell by 0.5 percent.
Nigel Roddis | Bloomberg via Getty Images

Britain's unemployment labor market bucked tepid economic growth in the second quarter as the unemployment rate unexpectedly fell to its lowest since 1975, official data showed on Wednesday.

The unemployment rate in the three months to the end of June fell to 4.4 percent, against the average forecast for it to hold at 4.5 percent in a Reuters poll of economists.

But the figures on wage growth showed the challenge facing Prime Minister Theresa May and her government, with households feeling the strain of rising prices since last year's Brexit vote.

While inflation has eased slightly since May when it hit an almost four-year high of 2.9 percent, prices are still rising faster than wages.

The Office for National Statistics said workers' total earnings including bonuses rose by an annual 2.1 percent in the three months to June, compared with 1.9 percent in the period to May, but this was boosted by bonus payments in the financial sector.

Economists taking part in a Reuters poll had expected wage growth of 1.8 percent.

Overall wage growth in real terms fell by 0.5 percent.

Excluding bonuses - which analysts say gives a better picture of the underlying trend - earnings in nominal terms rose by 2.1 percent year-on-year, unchanged from May and against expectations for a 2.0 percent rise.

The Bank of England is watching wage growth closely as it gauges whether the increase in inflation is creating longer-lasting pressure on prices. It expects wages to rise by 2 percent this year before picking up in 2018 and 2019.