Lowest unemployment number since 2005 lifts sterling

Added 20th July 2016

The United Kingdom’s unemployment rate fell to 4.9% in the three months to May, according to the Office for National Statistics.

Lowest unemployment number since 2005 lifts sterling

This represents the lowest level of joblessness seen in the country since 2005.

The data eased concerns over how robust the UK economy is going into its prolonged period of Brexit negotiations.

Sterling climbed 0.5% on the news to $1.31 while the FTSE 100 was up 20 points at 6718 by late morning, and the 250 up around 100 points to cross 17,000.

Economics consultancy Fathom Consulting warned however that the data released today does not necessarily reflect the full picture because it was gathered before the EU referendum result.

“Labour market data show strong growth in employment of 176,000 in the three months to May," Fathom said. "But in the post-referendum world, official UK statistics will be of limited use for a month or two, and today's Labour Market Statistics are no exception.” 

“We will keep a close eye on employment intentions surveys through the remainder of this year,” the consultancy added. “Latest readings suggest the labour market is in neutral gear, after a period of strong labour demand - we will receive more evidence at the end of this week when flash-PMIs are published for the first time. Our central view remains that the UK will narrowly avoid recession next year. But for this to happen, sterling needs to fall further to cushion the blow of weaker consumption and investment.”

Senior economist at Hargreaves Lansdown Ben Brettell expressed similar sentiments. “Today’s unemployment and wage growth numbers from the ONS cover the three months to the end of May. As such they reflect pre-referendum conditions and can be taken with a large pinch of salt. Nevertheless, the signs are mildly encouraging, with unemployment falling to an 11-year low of 4.9% and wages growing by 2.3% year-on-year.”

“In an interesting quirk of the data, the ‘claimant count’ figure released today is from June, so is a little more up-to date,” Brettell added. “An increase of 4,000 people claiming unemployment benefit was forecast, so the actual figure of 400 comes as something of a positive surprise. The post-referendum reality will gradually become clear over the next few months, and Friday’s preliminary PMI data will provide the first indication of economic activity since the vote.” 

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Alex Sebastian

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Alex joined Portfolio Adviser in April 2014 and has been a financial journalist since 2008. He has previously held editorial positions at the Financial Times Group and Euromoney Institutional Investor. Alex is NCTJ qualified and has a degree in economics from the University of Sussex.



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