British unemployment at 40-year low
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British unemployment at 40-year low

The UK economy got some good news yesterday, as figures showed that unemployment is at its lowest since 1975. According to the Office for National Statistics, the number of people in work rose by 92,000 to 31.9 million over the last three months. This is the biggest increase since last summer, and brings the unemployment rate down to 4.7%. Taken in tandem with the pound’s dramatic reversal of fortunes, Wednesday was a good day for Britain.

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The overarching story for the world’s seventh-largest economy remains surprisingly positive. It seems to have defied predictions of doom from the Brexit vote last June, and expanded by a fairly robust 0.7% at the end of 2016. However, there are weak points – and some of those are currently on display.

While unemployment hit its lowest point since 1975, real wage growth has also slowed to 2.3%. Assuming the spike in the pound’s value yesterday was just that, and that the currency will continue to depreciate through 2017, pushing up inflation, this could mean that real income is on course for its worst year since 2013.

Not great for the consumer spending that fuels the country’s economic growth.

For this reason, the consensus opinion is that the Bank of England will keep interest rates at a record low of 0.25% this week. Traders are currently pricing in a less-than 25% chance of a hike this year.

Disclosure
The opinions in this article do not reflect those of Dominion Fund Management Limited, and in the instance of any forward-looking statements, these should not be construed as advice.


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