UK unemployment rate drops to lowest since 1974 as pay squeezed

The number of UK workers on payrolls rose by 121,000 in the first three months of the year to 29.5 million, leaving the unemployment rate at its lowest since 1974, the Office for National Statistics said.

However, soaring inflation led to the biggest annual fall in real earnings excluding bonuses since 2013, official figures showed on Tuesday.

The jobless rate dropped to 3.7 per cent from 3.8 per cent and the 1.257 million people out of work was less than the 1.295 million job vacancies on offer for the first time on record.

The Bank of England is watching the strength of Britain's labour market warily, as it fears that higher-than-normal pay growth is a key channel through which the current energy-driven surge in inflation might become entrenched. On Monday, Bank of England Governor Andrew Bailey advised people, particularly those on higher incomes, not to ask for a pay rise this year, during a meeting with MPs at the Treasury Select Committee.

ONS director of economic statistics Darren Morgan said: “Since the start of the pandemic, around half a million more people have completely disengaged from the labour market.

“However, job vacancies are still rising, reaching yet another record high.

“Indeed, with the latest fall in unemployment, to its lowest rate since 1974, there were actually fewer unemployed people than job vacancies for the first time since records began.

"Strong bonuses in some sectors such as construction and especially finance mean that total pay is continuing to grow faster than prices on average, but underlying regular earnings are now falling sharply in real terms."

Total pay in the first quarter of 2022 was up 7.0 per cent on a year earlier - far above economists' average forecast of a 5.4 per cent rise - while regular pay excluding bonuses rose only slightly more than expected, up 4.2 per cent.

Adjusted for inflation, regular pay was 2.0 per cent lower than a year ago, the biggest fall since the three months to September 2013.

The labour market strength comes despite the economy stagnating in February and March. The BoE forecasts joblessness will rise as soaring energy prices sap consumer demand, causing a sharp drop in output by the end of the year.

The director general of the CBI has said the Government needs to “slow down the economy, but make sure it doesn’t slow down permanently”, as the number of UK workers on payrolls rises.

Speaking to LBC, Tony Danker said the Chancellor needs to “step in now” to help those hardest hit by the cost of living.

He said that “people cannot hire for love and money”, and labour shortages and inflation were the two factors most affecting business at this time.

He compared the need to slow down the economy to clutch control on a car and said the Chancellor and Government “need to slow down the economy, but make sure it doesn’t slow down permanently”.

He claimed that “people missing meals is unacceptable”, with many resorting to this measure because of the cost-of-living crisis.