Unemployment at 29-year low

THE number of people claiming unemployment benefit fell by 12,000 to 862,000 in May. The fall, more than twice City expectations, takes the claimant count to a 29-year low of 2.8%, according to the Office of National Statistics.

It was the 12th consectuive month that the unemployment rate has fallen.

The Government's preferred International Labour Organisation measure of unemployment fell by 9,000 to 1.43m in the three months to April.

Meanwhile, average wage rises excluding bonuses accelerated to 4.1% from 3.9% in March. Earnings growth including bonuses slowed from 5.2% to 4.3% in the three months to April as the effect of January payments faded.

The strength in the jobs market will create further concerns for the Bank of England's monetary policy committee. It raised interest rates for the second month in a row last week, partly because it is worried about rising inflationary pressures from the tightening in the labour market.

The base rate has increased from 3.5% in November and now stands at 4.5%.

'The MPC is unlikely to be particularly worried by the current level of wage gains,' said Simon Rubinsohn, chief economist at broker Gerrard. But he added: 'The fact that the trend has now turned up means that it will need to keep a close watch on these numbers over the coming months. It did refer to this issue in the statement accompanying last week's rate hike.'

Rubinsohn continues to expect the next rate rise in August.

Figures yesterday also revealed a bounce back in inflation. The ONS said the consumer price inflation rose to 1.5% in the year to May. However the number, which was in line with economists' expectations, is still well below the BoE's Government-set target of 2% inflation.