Unemployment falls to a near two year low as figures show huge increase in employment

The UK labour market continued to defy gravity in the final three months of 2012, with employment rising and the jobless rate falling despite a decline in output over the same period, according to the Office for National Statistics.

The number of people in employment rose by 154,000 between September and December on the previous three months, with the work force hitting 29.73 million. The number of unemployed people also fell by 14,000 quarter on quarter, taking the unemployment rate down to 7.8 per cent.

The number of people claiming the dole fell by 12,500 in January from the previous month. However, there was some less disappointing news on youth unemployment. The number of people aged between 16 and 24 out of work rose to 974,000, up 17,000 on the three months to November.

There were also some signs of an improvement in the quality of the jobs being created. The number of people in full-time positions rose 197,000, while the numbers in part-time work fell 43,000. There was also a decline in the number of people who said they were working part time because they could not find a full-time post.

The ONS reported last month that GDP contracted by 0.3 per cent over the period. The divergence between weak output figures and robust job creation data has led to rising concerns about a collapse in the productivity of British workers with some economists warning that this bodes badly for the UK’s future growth potential.

The official data also showed that workers continue to be squeezed by rises in the cost of living. Pay excluding bonuses rose by 1.3 per cent in the quarter on the same period of 2011, well below the 2.7 per cent annual rate of Consumer Prices inflation.

“The UK jobs market continues to astound” said John Philpott, director of the Jobs Economist. He added: “We are in a middle of both a jobs boom and a pay slump as jobseekers struggle to gain or retain employment in a stagnant economy by pricing themselves into work. This is unlike anything seen in this country since the Second World War, with the economy using more and more people at falling real rates of pay to produce a static level of output”.