By Geoffrey Smith
Investing.com -- The U.K. labor market tightened even further in April as the skills shortage plaguing the economy intensified.
The number of people claiming unemployment benefits fell by 56,900, the fifth month in a row that it has fallen by more than 50,000 and a bigger drop than the 42,500 expected. The jobless rate now stands at its lowest level since the early 1970s.
The shortage of workers gave fresh impetus to wage growth, which continued to run at a rate well above what the Bank of England considers compatible with low inflation. Average earnings including bonuses rose by 7.0% on the year through April, up from a rate of 5.6% through March, and the fastest growth in seven months. Excluding bonuses, wages rose 4.2%, up from 4.1% a month earlier.
Even at their current growth rate, wages are failing to keep up with inflation, which ran at an annual clip of over 7% through April. As such, there appears to be little relief in sight from the cost-of-living crisis gripping the economy.
Bank of England Governor Andrew Bailey told parliament on Monday that he would be "unable" to stop inflation peaking at over 10% later this year. He pointed, in particular, to the push to global food prices from Ukraine's inability to export its agricultural commodities.
Markets reacted to the data by pricing in further interest rate hikes from the Bank, despite the fact that, at its last meeting, it had forecast the economy will start to contract later this year under the pressure of high food and energy cost inflation. By 3:45 AM ET (0745 GMT), the pound was up 0.5% at $1.2383, its highest in nearly a week.
Bailey gave no indication in his testimony on Monday that the Bank would change course.
“It’s a very, very difficult place to be,” Bailey said. “To forecast 10% inflation and to say there isn’t a lot we can do about it is an extremely difficult place to be.”