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."

Ian Thorpe had Rio 2016 in his sights
world cup 2014A history of the third-place play-offs
Tommy Ramone performing at The Old Waldorf Nightclub in 1978 in San Francisco, California.
peopleDrummer Tommy was last surviving member of seminal band
Life and Style
Swimsuit, £245, by Agent Provocateur

Diving in at the deep end is no excuse for shirking the style stakes

The Mexico chief finally lets rip as his emotions get the better of him
world cup 2014
Spectators photograph the Tour de France riders as they make their way through the Yorkshire countryside
voicesHoward Jacobson: Line the streets for a cycling race? You might just as well watch a swarm of wasps
Life and Style
lifeHere's one answer to an inquisitive Reddit user's question
Life and Style
Several male celebrities have confessed to being on a diet, including, from left to right, Hugh Grant, Benedict Cumberbatch and Ryan Reynolds
...and the weight loss industry is rubbing its hands in glee
peopleDave Legeno, the actor who played werewolf Fenrir Greyback in the Harry Potter films, has died
Arts and Entertainment
'Eminem's recovery from substance abuse has made him a more potent performer, with physical charisma and energy he never had before'
arts + entsReview: Wembley Stadium ***
ebookA unique anthology of reporting and analysis of a crucial period of history
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

Information Security Manager (ISO 27001, Accreditation, ITIL)

£70000 per annum: Harrington Starr: Information Security Manager (ISO 27001, A...

Biztalk - outstanding opportunity

£75000 - £85000 per annum + ex bens: Deerfoot IT Resources Limited: Biztalk Te...

Trade Desk Specialist (FIX, Linux, Windows, Network Security)

£60000 per annum: Harrington Starr: Trade Desk Specialist (FIX, Linux, Windows...

Service Desk Analyst (Windows, Active Directory, ITIL, Reuter)

£35000 per annum: Harrington Starr: Service Desk Analyst (Windows, Active Dire...

Day In a Page

A History of the First World War in 100 Moments: Peace without magnanimity - the summit in a railway siding that ended the fighting

A History of the First World War in 100 Moments

Peace without magnanimity - the summit in a railway siding that ended the fighting
Scottish independence: How the Commonwealth Games could swing the vote

Scottish independence: How the Commonwealth Games could swing the vote

In the final part of our series, Chris Green arrives in Glasgow - a host city struggling to keep the politics out of its celebration of sport
Out in the cold: A writer spends a night on the streets and hears the stories of the homeless

A writer spends a night on the streets

Rough sleepers - the homeless, the destitute and the drunk - exist in every city. Will Nicoll meets those whose luck has run out
Striking new stations, high-speed links and (whisper it) better services - the UK's railways are entering a new golden age

UK's railways are entering a new golden age

New stations are opening across the country and our railways appear to be entering an era not seen in Britain since the early 1950s
Conchita Wurst becomes a 'bride' on the Paris catwalk - and proves there is life after Eurovision

Conchita becomes a 'bride' on Paris catwalk

Alexander Fury salutes the Eurovision Song Contest winner's latest triumph
Pétanque World Championship in Marseilles hit by

Pétanque 'world cup' hit by death threats

This year's most acrimonious sporting event took place in France, not Brazil. How did pétanque get so passionate?
Whelks are healthy, versatile and sustainable - so why did we stop eating them in the UK?

Why did we stop eating whelks?

Whelks were the Victorian equivalent of the donor kebab and our stocks are abundant. So why do we now export them all to the Far East?
10 best women's sunglasses

In the shade: 10 best women's sunglasses

From luxury bespoke eyewear to fun festival sunnies, we round up the shades to be seen in this summer
Germany vs Argentina World Cup 2014: Lionel Messi? Javier Mascherano is key for Argentina...

World Cup final: Messi? Mascherano is key for Argentina...

No 10 is always centre of attention but Barça team-mate is just as crucial to finalists’ hopes
Siobhan-Marie O’Connor: Swimmer knows she needs Glasgow joy on road to Rio

Siobhan-Marie O’Connor: Swimmer needs Glasgow joy on road to Rio

18-year-old says this month’s Commonwealth Games are a key staging post in her career before time slips away
The true Gaza back-story that the Israelis aren’t telling this week

The true Gaza back-story that the Israelis aren’t telling this week

A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
A History of the First World War in 100 Moments: The German people demand an end to the fighting

A History of the First World War in 100 Moments

The German people demand an end to the fighting
New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

New play reveals what Oscar Wilde said at trials

For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
Can scientists save the world's sea life from

Can scientists save our sea life?

By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

Richard III review

Martin Freeman’s psychotic monarch is big on mockery but wanting in malice