UPDATE 2-UK unemployment falls to lowest since Jan 2009, wage growth weak

Wed Jun 11, 2014 7:37am EDT

Related Topics

* Jobless rate fell to 6.6 pct from February to April

* The number of people in employment surges by record

* Pay growth slows from last year (Adds more data, comment)

By Ana Nicolaci da Costa and William Schomberg

LONDON, June 11 (Reuters) - Britain's labour market recovery gathered speed as a record number of people found work and drove unemployment to its lowest level in more than five years in the three months to April.

Pay growth slowed sharply but the Office for National Statistics suggested it was largely a blip after the April 2013 figure was boosted by delayed bonus payments.

Nonetheless, some economists said the weak earnings figures suggested that Britain's jobs recovery could carry on without pushing up inflation.

The Bank of England says there is room for further growth in the economy before it raises interest rates although some of its policymakers have started to say they see a growing case for a rate hike.

"With few signs still that the labour market is a source of inflationary pressure, we still think the Monetary Policy Committee can afford to keep interest rates on hold until well into next year," said Samuel Tombs at Capital Economics.

Sterling ticked higher and British government bond prices briefly hit a two-month low after the data.

The jobless rate fell to 6.6 percent between February and April - its lowest since the three months through January 2009. That was down from 6.8 percent in the first three months of this year and below the 6.7 percent rate expected in a Reuters poll.

British Prime Minister David Cameron used the numbers to further his case that the Conservative Party deserves to win another term in elections next May and he rounded on Ed Miliband, the leader of the opposition Labour party in parliament.

"He is absolutely allergic to good news because he knows that as the economy gets stronger, he gets weaker," Cameron said to cheers from his lawmakers. Miliband did not comment.

The number of people in employment surged by 345,000 to 30.535 million in the three months through April - the biggest increase since records began in 1971 - surpassing the previous biggest gain of 283,000 seen last month.

The ONS said that the rise in employment was due mainly to people being hired by companies rather than becoming self-employed as has been the case in recent months.

The BoE is looking at a broad measure of how much spare capacity there is in the economy with a focus on the labour market as it considers when to start raising interest rates from a record low of 0.5 percent.

A plunge in unemployment forced the Bank earlier this year to change the original version of its so-called forward guidance policy under which it ruled out considering a rate hike until unemployment fell to 7 percent.

LIVING STANDARDS

Wages overtook inflation in the first quarter of 2014, easing some of the pressure on households which have seen incomes squeezed in recent years. Pay growth lagged inflation for most of the period since 2008.

Living standards have become a key political background ahead of next year's national elections.

In the three months through April, total pay including bonuses rose a yearly 0.7 percent, slowing from 1.9 percent in the three months to March. In the month of April alone, total pay fell by 1.7 percent compared with the same month last year.

Economists had expected pay growth to slow because last year the figure was boosted by companies delaying payments of bonuses until April to help their staff benefit from a cut in the top rate of income tax to 45 percent from 50 percent.

Excluding bonuses, pay rose by an annual 0.9 percent in the three months through April - again, slowed by a strong figure in April 2013 - and by 0.4 percent in April alone.

Both readings of pay growth in the three months through April were weaker than forecast in a Reuters poll.

The labour market's strength has raised questions about how long the BoE can refrain from raising interest rates, as it tries to avoid hurting a recovery which was slow to take hold compared with other major economies. The BoE has indicated rates could rise in the second quarter of 2015.

Economists said the weakness of wages in Wednesday's jobs data - even taking the bonus distortion into account - could help the Bank to keep on providing stimulus to the economy.

"A rate hike before the end of the year just suffered a big blow," said Alan Clarke, head of fixed income at Scotiabank in London. (Editing by James Macharia)

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