Wage inflation hits three-year low as jobless falls again

The latest official figures showed another record fall in unemployment, yet wage inflation tumbled to a three-year low.

The latest official figures showed another record fall in unemployment, yet wage inflation tumbled to a three-year low.

The number of people in work rose to an all-time high of 27.930 million last month as a combination of strong economic growth, the New Deal, more flexible labour laws and a clampdown on benefit fraud brought more people into the jobs market.

The booming labour market looks likely to deliver the Government a pre-election boost, as the figures raised the hope that the British economy could copy the United States' "new paradigm" of strong growth, high employment and low inflation.

The number of people out of work and claiming benefits fell last month to a fresh 25-year low. The claimant count fell by 22,700 - almost twice the forecast figure - to take the total to 1.07 million, the lowest since January 1980. The rate fell to 3.7 per cent, the lowest since November 1975.

The claimant count figure is just 70,000 from hitting the politically important 1 million mark - not seen since December 1975. Unemployment is falling at an average of 15,000 a month which, if sustained, would send the count below 1 million in January 2001 - five months ahead of a probable general election.

The Government's preferred measure - which includes non-benefit claimants - also fell sharply, with the rate dropping to 5.5 per cent from 5.8 per cent. "There is some evidence of acceleration," said a spokesman for the National Office for Statistics, which compiled the data.

The Government seized on the figures. David Blunkett, the Secretary of State for Education and Employment, said: "There are more and more opportunities for people to return to work and for those who have never worked to enter the labour market."

Despite the huge demand for new workers, the pace at which pay and bonus awards are rising fell sharply. The average level of employees' earnings rose 4.1 per cent in the year to June from 4.6 per cent in May and down from a worrying peak of 6 per cent only five months ago. The fall was even larger than expected by economists in the City.

"This suggests there may have been some improvement in the supply side of the economy," said Nick Stamenkovic of IDEAglobal.com. "But it is premature to say it is permanent."

Other economists warned that the more workers were sucked into the labour market, the more likely it was that companies would be forced to increase wages to recruit and retain staff, threatening a surge in inflation.

There was further gloom for the manufacturing sector, which lost 82,000 jobs or 2 per cent of the workforce. Britain in Europe, which campaigns for membership of the single currency, said this compared with a 0.2 per cent rise in Europe.