Economy back on course for growth and low inflation

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SHARE prices surged and fears of an autumn rise in base rates abated after official figures yesterday showed a further slide in unemployment, subdued inflation and wage rises held firmly in check. The figures suggested the economy may well be on course for a period of sustained growth with low inflation.

The FT-SE 100 index jumped past the 3,000 mark for first time since 17 June, ending 41.4 points higher at 3005.3. Gilt-edged prices also rose but finished well below the day's best levels.

The number of people out of work and claiming benefit fell by 18,800 in June - the fifth successive monthly decline - to a 27-month low of 2,642,000. Unemployment fell in every region, with the biggest falls in the South-east, London, the West Midlands and the North-west. For the second month in a row, the number of jobs in manufacturing rose, suggesting the sharp slide in manufacturing jobs is levelling off.

The annual rate of inflation was unchanged at 2.6 per cent, though that is more than double the rate for last June. If mortgage interest payments are excluded - as the Government prefers to do - inflation eased slightly to 2.4 per cent, or the lowest rate for more than 25 years.

Price rises for spirits and beer, housing costs and fares were off-set by falling prices for personal goods, seasonal foods and the start of the summer sales for clothing and leisure goods. Later this year, inflation figures may worsen because the sharp downward pressure on prices a year earlier will make for unfavourable comparisons. Moreover, some economists worry that surging commodity prices will feed through into retail prices.

Despite a warning from the Institute of Directors that the era of pay freezes was over, the underlying increase in average earnings for the whole economy steadied at 3.75 per cent in the year to May. Upward pressure on earnings was checked by a sharp fall in earnings in manufacturing industry to 4.25 per cent.

Although the fall in unemployment was smaller than earlier this year, a surge of vacancies lifted hopes that the figures would continue to shrink. JobCentre vacancies rose by 5,000 last month to reach 152,800 - the highest in almost four years. Such vacancies are roughly one-third the number of jobs on offer and are seen as a good guide to the economy's general performance.