LONDON (Reuters) - British annual earnings growth unexpectedly slowed in October even though the jobless rate stood at a 32-year low last month, in a sign that a very tight labor market is still not feeding inflationary wage demands.
By Matt Falloon and Sumeet Desai
LONDON (Reuters) - British annual earnings growth unexpectedly slowed in October even though the jobless rate stood at a 32-year low last month, in a sign that a very tight labor market is still not feeding inflationary wage demands.
The Office for National Statistics said on Wednesday headline average earnings rose 4.0 percent on the year in the three months to October, easing from 4.1 percent in September and below forecasts for a rise of 4.2 percent.
The number of people claiming jobless benefits fell by more than twice the rate expected in November, by 11,100, taking the total down to 813,000 -- the lowest since June 1975. The rate held at 2.5 percent, the weakest since April 1975.
!ADVERTISEMENT!While the figures show little immediate danger of inflationary pay growth, the continuing tightness in the labor market will keep hawks on the Bank of England's Monetary Policy Committee focused on the New Year wage round.
"It's an encouraging combination of lower unemployment and weaker earnings growth, but I am not sure how long it can be sustained," said George Buckley, an economist at Deutsche Bank.
The central bank cut interest rates by 25 basis points to 5.5 percent last week to help shore up the economy in the wake of the global credit crunch, given fears over the chances of a prolonged slowdown.
But policymakers have been vocal about inflationary pressures bubbling away under the surface, despite expectations for further rate cuts. Factory gate inflation is at a 16-year high and oil and some food costs have soared this year.
FACTORY PAY GROWTH CRUMBLES
For now, it appears that wage growth is unlikely to add to those worries.
Earnings growth in the manufacturing sector crumbled to 2.5 percent -- a record low -- as last year's bonus payments were not repeated.
Services sector pay growth, however, picked up slightly to a rate of 4.4 percent, the highest since March.
Pay growth in the public sector also gathered pace to a rate of 3.2 percent from 3.0 percent in the three months to September.
The government has repeatedly called for wage restraint in the public sector, but given that earnings are rising far slower than the cost of living, there could be more strident demands for higher pay in the coming months.
There were already 327,000 working days lost to industrial disputes in October, the highest since March 2006, and further stoppages could add to public discontent over Prime Minister Gordon Brown's rule.
The government's preferred measure of unemployment also declined to 5.3 percent in the three months to October, the lowest since March 2006.
Headline retail price inflation, on which most pay deals are based, was running at 4.2 percent in October.
"The labor market is not a major constraint on further BoE rate cuts," said James Knightley, an economist at ING.
"Moreover, with downside risks intensifying, there is the threat that the unemployment rate will move higher once again through 2008."
(Editing by Ruth Pitchford)
