Number of jobless falls to lowest in 25 years

Unemployment tumbled to a 25-year low last month while earnings growth fell sharply, according to figures released yesterday, fuelling hopes that the UK can repeat the American miracle of high employment and low inflation,

Unemployment tumbled to a 25-year low last month while earnings growth fell sharply, according to figures released yesterday, fuelling hopes that the UK can repeat the American miracle of high employment and low inflation,

Pay and bonuses rose 4.6 per cent in the three months to May, the slowest rate for almost a year. This is a rapid slowdown from the 5.1 per cent in April and the 5.7 per cent in March. And the number of people out of work and claiming benefit fell 11,900 in June to stand at 1,098,000, the lowest since February 1980. The claimant rate now stands at 3.8 per cent, the lowest since 1975.

"These are spectacularly good figures," said Philip Shaw, chief economist at Investec. "They suggest very strongly that despite lower unemployment, the labour market is not a source of inflation pressure."

The Government's preferred jobless measure, the ILO unemployment rate, fell to 5.6 per cent - the lowest on record. The number of people in work surged to a new record high of 27,910,000, taking the employment rate to 74.6 per cent, the highest for 10 years.

Government ministers seized on the figures, saying one million more people had found work since Labour won power. The Confederation of British Industry said the outlook for inflation was "favourable", with its chief economist Kate Barker said: "It suggests interest rates can be left on hold through the summer."

The breakdown of the earnings data showed the slowdown was driven by a fall in bonuses.

The labour market takes centre stage when the Bank of England publishes its quarterly inflation report next month. David Coleman, chief economist at CIBC World Markets, said there were signs of tightness in the labour market.

Michael Taylor, of Lombard Street Research, said: "The labour market is still tight and there is evidence of upward pressure on settlements following the rise in headline inflation since last autumn."