Jobless levels down as US worries send shares lower

The number of people out of work in Britain has fallen to its lowest level for years, and some experts fear a new wage-price spiral. But the financial markets are more worried about the risk of higher inflation and interest rates on the other side of the Atlantic, writes Diane Coyle, Economics Editor.

The number of unemployed people claiming benefit fell to its lowest for 17 years last month. Yet it was not the latest evidence of a tight jobs market that sent shares lower yesterday, but rather evidence from retail sales figures that the US economy is still booming.

The FTSE 100 index ended 35 points lower at 5,263.7, having fallen 75 points after the release of the US figures. Wall Street finished lower too, the Dow closing 38 points down at 8,057.98.

Many analysts reckon interest rates will rise in both the UK and US next month. Minutes of the September meeting of the Bank of England's Monetary Policy Committee published yesterday showed that its experts were concerned about the impact of the soaring stock market on the economy, and also about the danger that wage growth might pick up.

The drop of 27,800 in the number of claimants during September took the headline unemployment rate down to 5.2 per cent, or 1,467,600 people.

Figures based on the Labour Force Survey (LFS), considered to be a more complete picture of the state of the jobs market, showed a drop of 40,000 in the number looking for work during June to August. On this measure unemployment returned to its lowest level since early 1990, at 1,997,000 people, or 7.1 per cent.

The decline in unemployment on this basis is much smaller than the headline change because strong employment growth has brought many people who had dropped out back into the jobs market. The survey shows that during the year to August employment climbed by 439,000, knocking 258,000 off unemployment and bringing 181,000 people who had become "economically inactive" back into the workforce.

Although both sets of figures showed that the jobs market has tightened, the growth in average earnings in the year to August remained at 4.5 per cent.

Economists were sharply divided about how to interpret yesterday's batch of figures. Some focused on the continuing fall in the jobless rate and rising vacancies. The number of unfilled vacancies at Jobcentres reached a record level of just under 301,000 in September.

Others, however, drew comfort from the steady earnings growth and the fact that the decline in unemployment might be slowing. According to the survey figures, the 40,000 decline in the number looking for work in the latest three months compares with a 73,000 drop in the previous quarter.

The possibility that the tighter jobs market might lead to high wage inflation was one of the concerns expressed by the Monetary Policy Committee. Although the committee voted unanimously not to raise interest rates, and also left rates unchanged at its October meeting, many City analysts expect an increase next month.

Kevin Darlington at ABN-Amro said: "It would not take much to push the Bank past the critical point." Figures next week for third-quarter GDP growth would be key to the decision.

On the other hand, Eric Fishwick of Nikko Europe predicted borrowing costs would not rise again this year: "It is obvious that the Bank has its finger on the trigger but feels there is no need to shoot just yet."

Separately, figures for retail sales in the US showed a sturdy increase in September rather than the decline most analysts had expected.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Collections Agent

£14000 - £16000 per annum: Recruitment Genius: This company was established in...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: SThree are a global FTSE 250 ...

Reach Volunteering: Trustees with Finance, Fundraising and IT skills

Voluntary and unpaid, reasonable expenses reimbursable: Reach Volunteering: St...

Day In a Page

Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

The Arab Spring reversed

Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

Academic claims King Arthur was real - and reveals where he lived

Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
Who is Oliver Bonas and how has he captured middle-class hearts?

Who is Oliver Bonas?

It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
Earth has 'lost more than half its trees' since humans first started cutting them down

Axe-wielding Man fells half the world’s trees – leaving us just 422 each

However, the number of trees may be eight times higher than previously thought
60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

60 years of Scalextric

Model cars are now stuffed with as much tech as real ones
Theme parks continue to draw in thrill-seekers despite the risks - so why are we so addicted?

Why are we addicted to theme parks?

Now that Banksy has unveiled his own dystopian version, Christopher Beanland considers the ups and downs of our endless quest for amusement
Tourism in Iran: The country will soon be opening up again after years of isolation

Iran is opening up again to tourists

After years of isolation, Iran is reopening its embassies abroad. Soon, there'll be the chance for the adventurous to holiday there
10 best PS4 games

10 best PS4 games

Can’t wait for the new round of blockbusters due out this autumn? We played through last year’s offering
Transfer window: Ten things we learnt

Ten things we learnt from the transfer window

Record-breaking spending shows FFP restraint no longer applies
Migrant crisis: UN official Philippe Douste-Blazy reveals the harrowing sights he encountered among refugees arriving on Lampedusa

‘Can we really just turn away?’

Dead bodies, men drowning, women miscarrying – a senior UN figure on the horrors he has witnessed among migrants arriving on Lampedusa, and urges politicians not to underestimate our caring nature
Nine of Syria and Iraq's 10 world heritage sites are in danger as Isis ravages centuries of history

Nine of Syria and Iraq's 10 world heritage sites are in danger...

... and not just because of Isis vandalism
Girl on a Plane: An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack

Girl on a Plane

An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack
Why Frederick Forsyth's spying days could spell disaster for today's journalists

Why Frederick Forsyth's spying days could spell disaster for today's journalists

The author of 'The Day of the Jackal' has revealed he spied for MI6 while a foreign correspondent