British unemployment rate to fall slowly over coming years

The British unemployment rate remained flat at 7.7 percent in the three months to August, according to figures released Wednesday, as some economists say that the jobless rate will fall slowly over the next year and a half. Employment has risen 155,000 in the past three months to leave 29.869 million people in work -- the highest figure on record. At the same time, there was an 18,000 drop in the number of people stating that they are out of work and looking for a job, and in terms of claimant count unemployed (the number of people claiming unemployment benefit) it fell 41,700, which is the biggest monthly fall since 1997. James Knightley, chief economist with ING, said, "With business surveys pointing to robust economic activity, we suspect that employment will continue to rise and unemployment will trend lower." Wages would start to respond to the shrinking pool of labor, and start to rise but this was unlikely to take effect before 2014, said Knightley. "With people feeling more secure in their jobs and with credit availability improving we remain optimistic on the UK's prospects and suspect that the unemployment rate could fall below the 7 percent threshold for the BOE to start considering raising interest rates in late 2014/early 2015," said Knightley. David Kern, chief economist at industry body the British Chambers of Commerce (BCC) said, "Although concerns remain over youth and long-term employment, the figures show that Britain's labor market is strong and flexible, and that the economy should record satisfactory growth in Q3. The large fall in inactivity is particularly pleasing, as more people are returning to the workforce and are looking for jobs." Kern said he expected the 7 percent unemployment threshold to be reached at least a year earlier than the Q3 2016 date set out by the BOE MPC, and he criticized some in the financial markets for interpreting an earlier-than-planned arrival at the threshold as a failure of forward guidance policy. However, George Buckley, chief economist with Deutsche Bank, said that today's report also highlighted weak wage growth. He said, "Wage growth remained very weak with regular pay growing at just 0.6 percent in the year to August." With inflation remaining at 2.7 percent, this points to a continued contraction in real wages of over 2 percent, year on year. Buckley said the weakness in wage growth might be in part related to slow productivity growth, with both output per worker and per hour rising at just 0.5 percent year on year.