Unemployment falls to lowest for seven years

The number of people claiming unemployment benefit fell sharply in April to the lowest for seven years. The drop of 59,400 took the total to 1.65 million, or 5.9 per cent of the labour force.

But the Government, which in opposition criticised the jobless figures as "fiddled", welcomed an announcement by the Office for National Statistics yesterday that it would review them. The recent sharp falls in the headline total have been exaggerated by the introduction of the Job Seekers' Allowance last October.

Other figures yesterday suggested wage pressures were not quite as severe as many economists feared. The rate of underlying average earnings growth was 4.5 per cent in March, the same as February's rate which was revised down by half a percentage point.

The Bank of England indicated, on the publication of its Inflation Report earlier this week, that 4.5 per cent pay growth was barely compatible with hitting the inflation target in the longer term.

Economists agreed that yesterday's figures indicated the labour market was getting tighter, but differed in their assessment of the inflationary dangers.

James Barty, of Deutsche Morgan Grenfell, said: "With unemployment continuing its rapid decline and the surveys beginning to show labour shortages, there is good reason to be concerned about the outlook for earnings." But John O'Sullivan at NatWest Markets said pay inflation was unlikely to rise above the 4.5 per cent threshold.

Earnings, like other economic statistics, reflect the diverging fortunes of manufacturing and services. The underlying growth rate in manufacturing has edged up from 4.5 per cent in March 1996 to 4.75 per cent, but the figure in services has climbed from 3.5 per cent to 4.75 per cent.

Bonuses in sectors such as financial services have been 30 per cent higher this year than last.

Claimant unemployment fell for both sexes, all ages, all regions and at all durations last month. The number of the unemployed aged under 25 fell to 421,700, their lowest proportion of the total on record.

Just over one-third of the total, 616,500, have been unemployed for more than a year.

The Employment Minister Andrew Smith said: "Unemployment is falling, but there are still far too many people without jobs and skills. We cannot accept unemployment at these levels."

The Office for National Statistics said it was reviewing the unemployment statistics in the light of increasing interest in alternative measures. Last year ministers decided against introducing a monthly survey of unemployment because of the pounds 8m-pounds 10m cost.

The ONS will consult widely over whether it should in fact be introduced, or whether to opt for a monthly figure derived from the existing quarterly survey, at a cost of about pounds 250,000. Many experts would prefer the dearer alternative.

Ruth Lea of the Institute of Directors said: "How important are the unemployment figures as a measure of the economy? If they are important, there is a good case for putting more money into them."

Separate figures in yesterday's batch showed that employment in manufacturing dipped by 3,000 in March. The level has been broadly flat for about 15 months.

The number of vacancies at JobCentres increased slightly to a new record of 275,600. The ratio of vacancies to unemployment, a favoured measure of tightness in the jobs market, is well above its 1989 peak.

Economics column, page 26