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UK unemployment rate drops unexpectedly to the lowest since 1974

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UK unemployment fell unexpectedly to the lowest since 1974 as people dropped out of the workforce at a record rate.

The government said 3.5% of adults were looking for work in the three months through August, down from 3.6% the month before and a rate last lower in 1974. Economists had expected no change.

The figures add to concerns about labor shortages, which are making it harder for companies to find the staff they need to expand. It’s also fanning wage increases and inflation, which the Bank of England has vowed to fight with higher interest rates.

Average earnings growth excluding bonuses accelerated to 5.4%, the Office for National Statistics figures show. That’s still little more than half the rate of inflation, meaning a sharp squeeze in living standards for millions of households.

Aggravating that increase in wages is the loss of hundreds of thousands of workers since the pandemic began, and there are few signs that the cost-of-living crisis is prompting them to return.

Inactivity — the count of people out of work and not looking for jobs — rose by the strongest rate since data started in 1971. Some 252 000 became inactive in the latest three months, with the increase driven by long-term sickness among older workers and young people becoming students.

The Bank of England has raised interest rates seven times since September and money markets are pricing an aggressive 1 percentage-point increase when policy makers meet in November.

That will worsen the plight of consumers and businesses already struggling with near double-digit inflation.

© 2022 Bloomberg

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