Jobless fall masks 14-year low for UK employment

Largest fall in jobless numbers for 13 years, but 'economically inactive' rises

In an unexpected boost for the economy, the number of jobless has fallen again, to its lowest level in a year, as the public sector continues to take on workers.

Data from the Office for National Statistics shows that the number out of work fell by 33,000 in the last quarter, leaving the headline total at 2.45 million. For the moment at least, UK unemployment appears to have passed its peak, though the squeeze on public spending later in the year may push it higher again.

At a rate of 7.8 per cent, down 0.1 per cent, British unemployment stands comparison with similarly sized economies such as Germany, with a rate of 7.5 per cent, and France, at 10.1 per cent.

The narrower count of those on unemployment benefits has fallen by 47,400 from last October's peak of 1.6 million. A lower than projected bill for the dole money will give the Chancellor additional room for manoeuvre in his Budget, due on Wednesday.

But while unemployment is down, so is employment. The rate of employment is at its lowest since 1996, at 72.2 per cent, or 28.9 million people. The discrepancy has arisen because an increasing number of people are simply leaving the workforce. The "economic inactivity" rate, which measures those who do not wish to work because they are bringing up a family, say, or are retired, has increased by 149,000 over the quarter and by 371,000 over the year to reach a record high of 8.2 million.

This increase in inactivity was largely driven by the number of students who have left the labour market – no longer seeking part-time, seasonal or casual work – which has increased by 98,000 on the quarter to reach 2.3 million, the highest figure since comparable records began in 1993. As "student" is a self-declared description, it may also be that this label is being used as a euphemism for unemployment by some younger people, disguising a weaker labour market than the headline figures suggest.

Much of the improvement in the jobs market over recent months has been due to central government hiring extra staff, something that is unlikely to be sustainable when widely expected cuts in public spending plans are implemented after the election.

Since the start of 2008, private sector employment has fallen by more than 4 per cent, while the public sector has expanded by almost 6 per cent. Over the past year, some 46,000 jobs were created by the state; in the same period 527,000 jobs were lost in the private sector. Overall, the economy is still shedding jobs.

Long-term unemployment is up sharply, by 61,000 to 687,000, a trend a Downing Street spokesman admitted was "worrisome". Youth unemployment remains close to 1 million, and a further million employees and self-employed people are working part-time because they cannot find a full-time position.

However, according to the more dire predictions of some economists last year, the figure should by now have reached 3.5 million or more. That it has not, and has not followed the disastrous path seen in previous recessions, seems to be largely due to exceptional pay restraint.

The ONS confirmed yesterday that wage rises are running at an annual rate of 1.4 per cent, and in the private sector at 0.7 per cent; this appears to have preserved many jobs. That in turn has helped to stem the expected flood of home repossessions, a collapse in house prices and economic confidence and further job losses, as occurred in previous downturns.