Jobless rate may defy predictions of a rise and stay at 11-year low

UK unemployment could defy a Bank of England forecast and remain below 5% this year, according to a member of the Bank's rate-setting committee.

But wages also look unlikely to grow strongly as the effect of Brexit adds to changing employment trends in holding back pay increases, said Michael Saunders.

Mr Saunders, a member of the Bank’s Monetary Policy Committee (MPC) since August, said in a speech to the Resolution Foundation that economic growth had been stronger than expected.

He added: "Rather than the rise in unemployment forecast in the November Inflation Report, it seems quite possible to me that the jobless rate will stay below 5% this year."

Latest UK unemployment figures show it was at an 11-year low of 4.8% in the three months to October 2016.

The Bank of England forecast in November that this would rise to 5.4% by the end of this year, with economic growth expected to slow in the wake of the Brexit vote.

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But Mr Saunders said that any economic weakness may well translate into less secure jobs, shorter hours and more people dropping out of the workforce rather than an outright rise in joblessness.

That meant lower than expected unemployment would not necessarily translate to higher inflationary pressures and the need for a hike in interest rates to contain them.

Trends such as flexible working and under-employment – people who are in work but doing fewer hours than they want to – were holding pay back.

Mr Saunders said: "These changes probably imply greater downward pressure on pay growth for any particular jobless rate than previously.

"It is also possible that Brexit-related uncertainties will reinforce other factors dampening pay."

Mr Saunders said there was "little sign of significantly higher pay growth for 2017" and that it would probably be well below the 4% pre-crisis normal level for the next few years.

The speech comes as research from the Institute for Fiscal Studies showed a steep increase in the proportion of low-paid men who were working part-time.

This has gone up from one in 20 men aged 25 to 55 - to one in five - over the last 20 years, the IFS said.

Meanwhile, the proportion of highly-paid men working part-time remains low, at one in 20.

"For men, low hourly wages and low hours of work increasingly go together," the report said.

"This has become an important driver of inequality in their pay."

By contrast, inequality in women's weekly pay has fallen as fewer are working part-time, the study found.