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Jobless rate falls to lowest since 1975 as pay growth lags

LONDON,  (Reuters) – – Britain’s unemployment rate unexpectedly fell further to its lowest since 1975 during the three months to July, but wage growth proved even more subdued than expected, official figures showed on Wednesday.

The data are likely to deepen division at the Bank of England over whether the time for an interest rate rise is nearing and will increase pressure on Prime Minister Theresa May’s government to further loosen the cap on public-sector pay.

The number of people in work rose to a record high of 32.136 million as 181,000 people gained jobs, the strongest increase since late 2015 and belying other signs of sluggish economic growth this year after last year’s Brexit vote.

The rapid job creation took the unemployment rate down to 4.3 percent from 4.4 percent.

Wages in the three months to July were 2.1 percent higher than a year earlier, little changed from previous months’ growth rates. Economists polled by Reuters had on average forecast a rise of 2.3 percent.

Excluding bonuses, which gives a better picture of the underlying trend, wage growth was also 2.1 percent versus poll expectations of a 2.2 percent rise.

With inflation hitting its joint highest level in more than five years of 2.9 percent in August, wages are failing to keep up with inflation. In real terms, wages dropped 0.4 percent in the three months to July.

Inflation has picked up sharply since the pound tumbled after last year’s vote to leave the EU, and on Tuesday Britain’s government said it would no longer limit pay rises for police and prison guards to a 1 percent cap for the public sector.

But it has made no extra money available, and public-sector trade unions are considering coordinated strike action to push for pay rises greater than inflation.

The figures are likely to complicate Bank of England policymakers’ debate over whether to support a rate rise at their monthly Monetary Policy Committee meeting later on Wednesday. The outcome of the meeting is due to be announced on Thursday.

While the lack of wage growth suggests the current surge in inflation will ultimately fizzle out, the strong growth in hiring points to greater robustness in the economy. Unemployment is also below the level which the BoE expects to trigger faster pay growth.

Last month just two MPC members backed a rate rise, and a minority of economists expect BoE chief economist Andy Haldane to join them this week.

This would still leave the MPC split 6-3 against lifting rates from their record-low 0.25 percent, but would boost market expectations about a move when the BoE updates its forecasts in November.

Most economists do not expect a rate rise until 2019, and think inflation will move only a little higher before slowly fading next year as domestic economic growth is subdued by Britain’s looming departure from the European Union.

The number of new claimants for unemployment benefits – a bellwether for the broader labour market – fell by 2,800 in August against average forecasts of a marginal increase of 600.

Reporting by David Milliken and William Schomberg

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