Growth in pay slows as jobless figures hit 25-year low

Growth in pay and bonuses tumbled to its slowest pace for three years despite a fall in the unemployment rate to a fresh 25-year low, according to official figures published yesterday.

Growth in pay and bonuses tumbled to its slowest pace for three years despite a fall in the unemployment rate to a fresh 25-year low, according to official figures published yesterday.

Both sets of data were better than expected and fuelled hopes the UK can copy the American miracle of high growth, low inflation and low unemployment. "This suggests there may have been some improvement in the supply side of the economy," said Nick Stamenkovic of analysts IDEAglobal.com. "But it is premature to say it is permanent."

Growth of average earnings slowed to 4.1 per cent in June from 4.6 per cent in the previous month and the lowest rate since July 1997. Economists had expected a fall to 4.3 per cent.

Wage inflation has dropped from a peak of 6.0 per cent to 4.1 per cent in just five months. At the same time unemployment has fallen further and a record number of people are in work.

Figures for July, published yesterday, showed the number of people out of work and claiming benefit fell 22,700 last month - double the forecast 12,000 - to 1.07 million, the lowest since January 1980. But 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 just over 15,000 a month which, if sustained, would send the count below 1 million in January.

The Government's preferred measure 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.

The Government seized on the figures. David Blunkett, 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."

But some City economists warned the tightening labour market would worry the Bank of England, despite the fall in wage inflation. "It seems clear it will raise rates at least once more this year," said Stewart Robertson of Lombard Street Research.

The cocktail of good employment news concealed further gloom for the manufacturing sector which has lost 82,000 jobs or 2 per cent of the workforce.

Britain in Europe, which campaigns for UK membership of the single currency, said this compared with a 0.2 per cent rise in Europe. "These figures show the risk to British jobs if we close the door on the euro," said chief economist Kitty Ussher.