The U.K. economy is creating jobs at its fastest rate in over 40 years as the country’s recovery gathers momentum.
Figures released Wednesday by the Office for National Statistics showed that employment rose by 254,000 in the three months to May, and by 929,000 over the last year, the largest increase since records began in 1971.
That was well ahead of the 205,000 gain expected and, coming after a surprise increase in the annual inflation rate to 1.9% in June, will further stoke expectations that the Bank of England will become the first major central bank since 2011 to raise interest rates later this year. The economy is expected to grow by around 3% this year, the fastest rate of all the G7 major industrialised economies.
The figures are the latest example of the gulf in fortunes between those European countries with flexible labor markets and those which have kept traditional restrictions, particularly regarding job protection.
While France and Italy continue to struggle with unemployment rates of over 10% and 12%, respectively, that rate in the U.K. and Germany is now down to 6.5% and still falling. For the U.K., joblessness is at its lowest since October 2008.
The U.K. figures also showed a sharp rise in participation in the labor force, with 73.1% of working-age people now in some form of work, another all-time high.
The pound hit a two-year high against the euro after the data and gained just under half a cent against the dollar to $1.7122 by 0800 EDT.
“The labor market is tightening quickly in response to strong U.K. growth, which should lead the BoE to hike interest rates in November,” Berenberg Bank’s Rob Wood wrote in a note to clients.
Data in recent months had appeared to overstate the health of the labor market, inasmuch as most of the gains were in self-employment, where work is often only irregular and precarious. However, Wood noted that ’employees’ accounted for the majority of new jobs in May.
As the economy has strengthened, financial markets have moved up their estimate of the first interest rate hike to the end of this year, more than a year earlier than Bank of England Governor Mark Carney first indicated when he took office in 2013.
However, a 2014 rate hike still isn’t a done deal. The Bank of England’s biggest concern is with house prices, which rose by 10.5% in the year to June. But that development is skewed by a flood of foreign money into the London market, and the Bank’s top management has said it wants to apply more targeted measures first before trying the blunt instrument of interest rates.
One factor arguing against higher rates is that many people are still getting poorer in real terms.
The ONS said that average earnings rose only 0.3% on the year in the three months to May, down from 0.5% in the previous month’s report. In part, that’s due to bonuses in the City of London being lower than last year, but even excluding bonuses, average wages were only up by 0.7%, well behind the inflation rate of 1.9%.
Earlier this week, over 1 million public-sector workers staged a one-day strike, largely over pay.