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Unemployment falls to benchmark low


Unemployment figures in the UK have been given a huge boost as they returned to the benchmark low set in 2005.

The number of people without a job fell by 121,000 in the three months to May and they now stand at 2.12 million, according to the Office for National Statistics.

Over 78% of men are now in work, whilst the employment figure for women stands at around 68% – giving a total employment rate of 73.1%.

Additionally, in the three months to April 2014, unemployment figures were recorded at 6.5%, down from 6.6% in the previous three months.

These figures are significant as they are equal to figures released in 2005, when the lowest ever levels of unemployment were set.

Prime Minister David Cameron praised the figures, saying that “more people have the security of a job than ever before”.

Cost of living crisis

However, despite the number of people in employment increasing, the average wage growth has continued to perform poorly against inflation, raising concerns about the apparent ‘cost of living crisis’.

Inflation measured at the Consumer Prices Index (CPI) was recorded at 1.9% in June, up from 1.5% a year earlier. However, wages in the three months to May grew by just 0.3% over the last 12 months when bonuses were included, whilst growth was measured at 0.7% when bonuses were excluded.

This led to Rachel Reeves, the Labour shadow work secretary stating that there was “most definitely a cost of living crisis in the UK”.

Frances O’Grady, general secretary of TUC said that whilst it’s a good thing that unemployment is falling, he questioned the quality of the jobs being produced.

He stated: "If all the recovery can deliver is low-paid, low-productivity jobs - many of which don't offer enough hours to get by - then it will pass most working people by and Britain's long-term economic prospects will be seriously diminished."

One of the reasons for low wages growth could be linked to recent admissions by the Bank of England, who said that they may have underestimated the amount of spare capacity in the economy by as much as 0.5%.

‘Spare capacity’ is a method the Bank of England used to measure how much the UK GDP is below its growth potential.

A high level of spare capacity is usually due to underinvestment from businesses, and one potential consequence of having too little investment from UK businesses is that they hold back on hiring staff, even though they have room to do so. However, once businesses begin to hire more employees, they usually have to increase wages to attract workers.

Speaking about the potential for wage growth, Robert Wood, UK economist at investment bank Berenberg said: "Wage growth remains extremely weak, but that cannot last much longer with unemployment falling this fast. We look for a Bank of England rate hike in November."

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