UK unemployment has dropped to the lowest level in more than 44 years despite mounting fears over Brexit, as employers across the country ramped up hiring at the fastest rate in more than three years.
The Office for National Statistics said Britain’s jobless rate fell to a fresh low of 3.9% in the three months to January, down from 4% a month earlier, the lowest point since the start of 1975.
Companies increased their hiring activity to add another 222,000 people to the UK workforce, taking the overall number in work to a fresh record high of 32.7 million.
The surprise drop in the jobless rate came despite mounting concern that the chaos over Brexit in Westminster might have encouraged companies to freeze their hiring plans until they have greater clarity over the political situation.
John Philpott, the director of the Jobs Economist consultancy, said: “Nobody seems to have told the labour market about the mood of Brexit-related economic uncertainty which has gripped the UK since last autumn.
“These record-breaking jobs numbers seem extraordinary and suggest that only a recession-inducing hard Brexit is likely to have a noticeably negative impact on the UK’s employment situation.”
Analysts cautioned that the jobs figures are backward looking because they relate to the three-month period to January, only touching on the start of the worsening crisis over Brexit. Theresa May suffered the worst ever parliamentary defeat of the modern era over her plan for EU withdrawal in mid January, while employers’ surveys suggest jobs growth has begun to ease in more recent months.
The robust picture of the jobs market may, however, mask several potential problems facing the UK economy, with the figures covering a period when GDP growth cooled from the higher levels seen last summer.
Observers said companies were likely to have hired workers to meet demand, instead of investing in productivity-boosting technology – paving the way for weaker growth in future.
The Bank of England has previously identified the trend, warning that firms have become more reticent to commit to major expansion plans. Workers tend to be easier to hire and fire, while major investments are costly to reverse. Business investment fell in every quarter last year, the first time since the last recession a decade ago.
Andrew Wishart, UK economist at the consultancy Capital Economics, said: “This will add to concerns that the Brexit-related fall in investment is having a detrimental effect on the economy, as firms have opted to hire workers to meet demand rather than invest.”
Much of the jobs growth in recent years has also come from older Britons staying in the workforce for longer, particularly from changes in the state pension age resulting in fewer women retiring between the ages of 60 and 65 years. The ONS also said that the number of people in retirement dropped to the lowest level in 25 years.
Alastair Neame, senior economist at the Centre for Economics and Business Research, said: “Since the three months to January 2014, [employment] has increased by 2.39 million, [while] the number of over 50s in employment has increased by 1.41 million – 59% of the total.”
The government said the rise in employment was down to its pro-business policies. Alok Sharma, the employment minister, said: “Our jobs market remains resilient as we see more people than ever before benefitting from earning a wage.”
The latest snapshot from the ONS suggests that stronger wage rises are starting to come through for British workers amid the low levels of unemployment. Official figures also show record levels of jobs vacancies, with as many as 863,000 unfilled jobs.
Average weekly earnings continued to rise at an annual rate of 3.4% in the three months to January. Economists said this would usually pressure the Bank to raise interest rates, but that the Brexit impasse would prevent it from hiking borrowing costs for now.
Sign up to the daily Business Today email or follow Guardian Business on Twitter at @BusinessDesk
Stephen Clarke, a senior economic analyst at the Resolution Foundation, said: “This encouraging jobs growth is benefiting women and those traditionally left out of the labour market. It is even starting to have a knock-on effect on still historically weak pay rises.
“This is crucial for driving a long overdue pay recovery for workers, but may be held back if firms’ reluctance to invest continues.”