UK jobless total declines again

Wage growth can be a main driver of inflation and interest rates

The number of people out of work in the UK fell in the three months to June, according to official figures.

The Office for National Statistics said unemployment fell by 45,000 over the quarter to 1.65 million, continuing a downward trend.

But fears that a strong labour market will lead to wage demands and push up inflation were allayed by weak average earnings growth.

The numbers reinforced the view that interest rates could remain at 5.75%.

Average earnings in the UK, including bonuses, increased by 3.3% over the three-month period, the slowest rate in four years.

News of the muted pay pressure follows Tuesday's unexpected fall in consumer price inflation to below the government's key 2% level.

This is an encouraging sign that the Bank of England's rate-setting body will not rush into pushing interest rates up to 6%, analysts say.

Jobless rate decline

At the same time, data showing a continuing decline in the jobless rate and the number of people claiming unemployment benefits will be read as an indication that economic growth in the UK is still on track.

The redundancy rate for the three months to June 2007 was 4.8 per 1,000 employees, the lowest figure since comparable records began in 1995.

"Unemployment is continuing to fall gently, but average earnings numbers are very benign at the moment," said David Page at Investec.

"Wage inflation is just not adding to medium-term inflation risks at present. In fact, we wonder if there's a potential problem of soft wage growth undermining household spending."