Sharp fall in jobless rate signals pick-up in growth

Economy: Rise in average earnings sparks fears of renewed inflation

Unemployment fell by a much bigger margin than expected last month, providing a boost for the Government and another sign that underlying economic growth may be picking up.

But economists feared that upward revisions to average earnings figures were an indication of inflationary pressures in the pipeline, reducing the chances of further cuts in interest rates.

The seasonally adjusted jobless total dropped by 24,100 in July to 2,126,200, its lowest level since March 1991. The consensus forecast by City economists had been for a drop of around 14,000. The Office of National Statistics also said June's fall in unemployment at 16,000 was larger than the previous estimate of 14,300.

The unemployment rate last month was 7.6 per cent, though the male rate, at 10.3 per cent, compared with a rate for women of just 4.3 per cent. Government statisticians said July's fall, the largest since March, was out of line with the recent trend, with reductions in the coming months expected at around 15,000.

Figures for unfilled vacancies at job centres were also buoyant, rising by 11,500 to 230,300, the highest number since January 1989.

Kevin Darlington, UK economist at stockbrokers Hoare Govett, said: "Unemployment continues to trickle down faster than anticipated. These figures give the distinct sense that behind the scenes the economy is more buoyant than perhaps other statistics are suggesting."

John Monks, general secretary of the TUC, pointed to recent survey evidence showing a fall in the number of people employed. "The fall in claimant unemployment is welcome, but is not a reliable guide to what is really happening in the labour market. There is still no sign that the economy is generating more jobs."

The number of people out of work and claiming benefit in July fell in every region, though there were signs that the gap between north and south was opening up again. The biggest reduction was in the South-east, where the rate stood at 7.1 per cent. The lowest unemployment rate was in East Anglia, at 5.8 per cent, while in the North the jobless total stood at 9.7 per cent.

There was less good news for the Government in the average earnings figures. The surprise fall reported in underlying average earnings growth in May, from 3.75 per cent to 3.5 per cent, had been revised back upwards in the statistics published yesterday. The new estimate for May was 3.75 per cent, with the same figure for June.

Economists differed over the significance of the revision. Ciaran Barr, from Deutsche Morgan Grenfell, said: "By the end of next year I think you will see inflationary pressures really building up. Average earnings could rise as fast as 5 per cent."