Inflation fears rekindled as dole queues hit 17-year low

With new figures showing earnings growth picking up as unemployment fell further, the Government issued a plea yesterday for pay restraint. The signs that the tight jobs market is fuelling wage inflation revived concern about interest rates. Diane Coyle, Economics Editor, reports on the Bank of England's dilemma.

The number of people out of work fell by 150,000 to 1.85 million between the summer and autumn, according to the quarterly survey of the labour force. The number of unemployment benefit claimants dropped by 28,700 in December to just over 1.4 million, the lowest for 17 years.

This 22nd decline running in the monthly claimant total was accompanied by figures showing the rise in underlying average earnings had climbed to 4.75 per cent in November, up from 4.5 per cent in October, itself revised up by a quarter point from the first estimate. The Office for National Statistics (ONS) said higher bonuses in both services and manufacturing and more overtime in manufacturing explained the rise.

Whatever the explanation, it alarmed the financial markets, where earlier hopes that the Bank of England might not raise interest rates again went into reverse. The minutes of the Monetary Policy Committee's (MPC) meeting in December, published yesterday, showed that the decision not to raise rates then was in order to "wait and see" because the economic evidence was mixed rather than reflecting a view that they had already climbed far enough.

Andrew Smith, Employment Minister, welcomed the drop in unemployment but warned: "Moderation on earnings is essential if economic growth is to be sustained and jobs growth to continue." He said it was essential to control costs in competitive world markets.

A background note to yesterday's figures issued by the Department for Education and Employment stressed that they were not conclusive evidence of inflationary pressure in the jobs market. In what could be interpreted as a message to the MPC, it said there were only a few signs of skills bottlenecks, and that the pace of decline in unemployment might have slowed recently.

David Blunkett, the Education and Employment Secretary, announced a new taskforce to tackle skills shortages, but said: "If we wish to avoid further pressure for retrenchment in the economy and concomitant interest rate rise, we must not exaggerate the problems."

However, yesterday's batch of statistics pointed firmly to a very upbeat jobs picture. The ONS said unemployment was falling, and employment rising, at a monthly pace of 20,000 to 45,000, more than its previous "over-cautious" estimate.

The fall in the quarterly labour force survey measure, seen as the most reliable indicator, was the biggest since the survey began in early 1984. The survey also showed a big rise in employment in the latest quarter, up by 117,000, almost all full-time jobs.

Full-time employment returned to its highest level in more than six years. Part-time employment, unchanged during the quarter, remained at a record level.

City commentators were more concerned about the upward creep in underlying average earnings. The November figure, based on an estimate of high bonuses in December as well, has matched the bonus-related spike seen last year.

However, if earnings growth did not retreat after another month or so, analysts said the Bank would have to raise interest rates. The balance of views in the City, which had tilted away from expecting an increase after signs of weakness in industry earlier in the week, tilted back the other way yesterday.

The minutes of the MPC's December meeting noted the members' sensitivity to accelerating pay. "Concerns about skill shortages persisted, and the [Bank's] Agents reported concerns around the country of emerging wage pressures."

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Software Engineer / Software Developer

£40-50K: Guru Careers: We are seeking an experienced Software Engineer / Softw...

Ashdown Group: Trainee Consultant - Surrey/ South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Ashdown Group: Trainee Consultant - Surrey / South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Recruitment Genius: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Day In a Page

Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before