Jobless total drops but figures offer few clues on rates

Unemployment has fallen again, but not too fast, earnings growth appears stable and the pace of pre-Christmas shopping has been calm so far. The statistical snapshot for November suggests the economy is responding to its interest-rate medicine. Diane Coyle, Economics Editor, asks whether another dose will be needed.

Headline unemployment fell by 21,100 last month to just over 1.4 million. The unemployment rate, at 5.1 per cent, is now the lowest since 1980.

This figure measures only those who can claim unemployment benefit. But even the more reliable survey-based unemployment measure shows the rate at its lowest for more than seven years, at 7.1 per cent.

Yet the two-year decline in unemployment has been accompanied by only a modest pick-up in pay pressures. Yesterday's figures showed underlying average earnings growth remaining stable at 4.25 per cent in October.

Many economists believe one clue to whether the Bank of England will need to raise interest rates again is whether earnings growth accelerates.

Adam Cole of James Capel said: "We are going into the January pay round with rising headline inflation and settlements already edging up. We are reaching the limits of how far unemployment can fall."

He pointed out that pay increases in the private sector are running at 5 per cent, with public sector pay freezes holding down overall growth.

And Andrew Smith, the Employment Minister, issued a plea for pay restraint. "The prize of sustainable growth and lower unemployment depends on keeping inflationary pressures firmly under control," he said.

Other City economists took comfort from the clear slowdown in the speed with which unemployment is falling. November's decline compares with an average drop of 32,000 during the preceding six months.

Figures for employment also indicated that the improvement in the jobs market is starting to ease back. Employment rose by 80,000 in the third quarter, within which there was a 20,000 decline in manufacturing employment.

It was the smallest quarterly increase since early 1996. The number of unfilled vacancies fell too, their first decline since May.

Separate figures for retail sales last month did little to resolve the debate.

The volume of goods sold on the high street fell by 0.4 per cent during the month. This was less of a drop than earlier surveys had suggested, leaving sales 4.8 per cent higher than a year earlier.

The warm weather cut clothing sales by 2.9 per cent in November, while sales of household goods fell by a record 3.7 per cent in the latest three months. But putting special factors aside, the growth rate has clearly slowed from the windfall-boosted pace of this summer.

Adding to the uncertainty, retail sales account for only one- third of consumer spending. Areas such as car sales, holidays, meals out and entertainment are not included.

This means the figures for GDP in the final quarter of this year, due after the next meeting of the Bank's Monetary Policy Committee on 8 January, will be a decisive guide to the strength of demand in the economy as a whole.