The unemployment rate fell to 5.1 per cent in the three months to November, putting it at the lowest level since 2006 – and back to its average over the six years before the crisis. Back to what the Bank of England regards as the “equilibrium” rate.
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The other side of the coin is that pay growth is down too. Excluding bonuses it’s fallen to a sluggish 1.9 per cent year-on-year, around half its pre-crisis rate. Workers’ spending power is still growing – but that’s driven by low inflation.
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At the equilibrium unemployment rate, the Bank of England thinks a further fall in joblessness could drive up inflation – but there are few signs of pressure on prices or wages. That could be because people are under-employed – people in part-time jobs want to go full-time, and people who are self-employed want to be employees: because migrants are contributing to labour supply growth (those born outside the UK have made up 80 per cent of net new employment growth over the last year): because productivity is not growing (and may even be going backwards – in the last quarter the number of hours worked grew by 1 per cent, far above the likely level of GDP growth): and because benefit reforms are driving more people into work.
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