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Employment hits record high raising expectations for August interest rate hike

New labour market data supports Mark Carney, Governor of the Bank of England's relatively hawkish July 5 speech, but since then his deputy, Sir Jon Cunliffe called for policymakers to be 'stodgy' - Getty Images Europe
New labour market data supports Mark Carney, Governor of the Bank of England's relatively hawkish July 5 speech, but since then his deputy, Sir Jon Cunliffe called for policymakers to be 'stodgy' - Getty Images Europe

The number of people in the UK who have a job has hit another record high according to official statistics, as wages have continued to grow in real terms.

The latest record for employment - the highest level since 1971 - showed that there were 32.4m people in work in the UK from March to May this year. This was nearly 400,000 higher than the same period a year earlier.

Overall the employment rate was at 75.7pc.

Unemployment remained at 4.2pc, the Office for National Statistics said. This was the joint lowest level since 1975.

Matt Hughes of the ONS said: “We’ve had yet another record employment rate, while the number of job vacancies is also a new record. From this it’s clear that the labour market is still growing strongly.

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"Meanwhile real earnings remain modestly up on the year, both including and excluding bonuses.”

Employment levels are closely watched by interest rate setters at the Bank of England.

Monthly employment rate
Monthly employment rate

They will also have played close attention to earnings levels, which showed signs of steady, if muted, growth.

Average weekly earnings increased by 2.5pc, including bonuses, compared with a year earlier. Once the impact of rising prices was factored in, workers' pay packets increased in real terms by 0.2pc compared to a year earlier, the ONS said.

This rate of growth was down by 0.1 percentage points from 2.6pc in April.

According to Samuel Tombs of Pantheon Macroeconomics the data were “hardly a humdinger” but would be enough to persuade policy makers at Threadneedle Street to press ahead with August’s rate hike. The market expects rates to rise from 0.5pc to 0.75pc.

Bank of England will not 'spoon feed' City on interest rate hikes, policymaker says
Bank of England will not 'spoon feed' City on interest rate hikes, policymaker says

Many economists attributed the combination of record employment levels and relatively subdued wage growth to the UK’s ongoing productivity puzzle.

Until the amount produced per worker per hour rises significantly, there is unlikely to be a large uptick in earnings.

Tej Parikh, of the Institute of Directors, said that the UK’s strong record for job creation should “not be taken for granted" and weak productivity growth “must be addressed”.

Mr Parikh added: “In the face of significant headwinds, businesses are still finding ways to generate new working opportunities.”

Messages on the likelihood of an August rate hike from the Bank have been mixed. At the start of July, Governor Mark Carney said that he had “greater confidence” that the UK’s weak economic start to 2018 was due to poor weather.

Mr Carney said: “Pay and domestic cost growth have continued to firm broadly as expected.”

However, last week, the Bank’s deputy governor and long-standing dove, Sir Jon Cunliffe, called for rate setters to be “stodgy”.

Separately, Mr Carney told MPs on Tuesday that it would be a "material event" for interest rates if Britain leaves the EU next year without a deal to smooth its departure. 

A hearing with the Treasury Select Committee was supposed to be live-streamed for the public from Farnborough Air Show, but this failed due to technical difficulties.