Wage fears escalate as jobless hits 20-year low

Unemployment tumbled to a 20-year low last month as the resurgent economy sucked in new workers, according to official figures yesterday.

Unemployment tumbled to a 20-year low last month as the resurgent economy sucked in new workers, according to official figures yesterday.

The fall stirred up fears of a take-off in wage inflation around the corner. The prospect of higher interest rates took sterling's trade-weighted index up to equal its March 1988 peak - itself the highest level for a decade.

The number of people out of work and claiming benefit fell by 21,900 - almost double the forecast figure - to 1.164 million, the lowest since March 1980. The rate of 4.0 per cent is the lowest since January 1980.

The Government's preferred Labour Force Survey rate stayed constant at 5.9 per cent, its lowest on record. The number in employment hit a fresh all-time high of 27.52 million.

There were falls in almost all regions, raising hopes of a narrowing in the North-South divide. The falls were largest in areas that have suffered most from the collapse of traditional manufacturing jobs, such as northern England and Scotland. However, the gain was entirely in service sector employment.

LFS unemployment in the North-west fell 0.8 per cent - or 23,000 people - compared with 1998. Scotland and Yorkshire & Humberside fell 0.6 per cent. The regional data provided relief for Eddie George, the Governor of the Bank of England, during a visit to Scotland.

He was accused of hiking rates to quell London house prices at the expense of Scottish industry. Mr George said: "Employment in Scotland and the UK is the highest on record. Unemployment is a little higher in Scotland ... but the differential is near the lowest it's been in absolutely ages."

Average earnings growth was unchanged at 4.9 per cent - still above the 4.5 per cent level the Bank of England considers compatible with its inflation target. Last week the Bank cited increases in labour income as one of the reasons for its quarter-point rate hike.

Analysts said they doubted the labour market could continue to suck in workers without triggering sharp rises in pay.

Further signs of tightness in the labour market came from figures for job vacancies, which are close to an all-time high. There are now only 3.3 unemployed people for every position.

Michael Saunders, an economist at Salomon Smith Barney, said that as official data only covered one-third of the true total, the ratio was close to one. "However you define full employment, we are nearly there," he said. "Expect more rate hikes, with 0.25 or 0.5 percentage points in February."

The Government displayed no concern over growing staff shortages. Tessa Jowell, the employment minister, said: "The high levels of vacancies mean that more people than ever can look for work and have a good chance of getting a job."

Meanwhile consumer confidence is rising, according to two surveys published today. Almost three-quarters of households are very or fairly confident, according to the Consumers' Association's quarterly trends report, while the Institute of Management said consumer confidence was now at its highest level since its quarterly trends began in 1996.