The pound reached its highest level for nearly six months, helped by a sharp rise in the dollar to its highest value against the yen for well over a year, and the number of people claiming unemployment benefit fell below 2.3 million last month for the first time since May 1991.
The official measure of unemployment has now fallen steadily for two years. But growth in underlying average earnings in the year to July fell by 0.25 per cent to 3.25 per cent. Lower pay growth in the service industries, especially in retailing and catering, explained the drop.
Activity in the jobs market was "very brisk" in August, according to the Central Statistical Office. But officials cautioned that the surprise fall of 18,000 in joblessness might have been due to temporary jobs filled by the growing number of students leaving higher education, and a larger-than- usual number of summer vacancies. The rate of decline in unemployment has slowed to 5,000- 10,000 a month from an average of 25,000 a month during the past year. Economists see this as a more sustainable pace. The number of people in employment increased by 58,000 in the three months to June, the latest quarter for which full figures are available.
Gillian Shepherd, education and employment minister, said: "Many opportunities are available for people seeking jobs." But Harriet Harman, speaking for Labour, said: "The figures give the Government no cause for complacency."
The labour market snapshot was favourably received. Although many City economists remained cautious about the prospect for a fall in base rates, traders were more optimistic. The short sterling futures market shaved a little off its expected end-year base rates, taking the level to 6.5 per cent by the end of December. The FT-SE 100 index closed 35 points higher at a record of 3,570.8, and the pound jumped two pfennigs against the mark, closing above DM2.31. Its effective index rose 0.6 to 85.5, the highest since March. A bout of intervention in the currency markets by the Bank of Japan took the dollar decisively upwards. It touched 102.7, and traders said it could reach 105 before long.
The Dow Jones industrials index had risen 15 points to 4,762, up from the previous record close by midday in New York. But US bond prices retreated yesterday. The Federal Reserve's assessment for the 26 September meeting of its policy committee said the pace of activity in the economy had picked up in August and inflationary pressures had not changed much. This slightly damped speculation about a cut in US interest rates, taking the gloss off the better-than-expected figures for consumer prices. These prices, which - unlike Britain's RPI - include the cost of services such as healthcare and haircuts, rose only 0.1 per cent in August, taking the inflation rate down to 2.6 per cent.
Despite this additional evidence of the absence of inflationary pressure, Wall Street economists said the Fed was more concerned about the pace of economic activity.
Figures on retail sales today and industrial output tomorrow could prove decisive.
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