British Labor Market Continues to Strengthen

The FINANCIAL — The British labor market continued to strengthen during the first quarter of 2015, official figures show, despite a slowdown in the pace of economic growth, according to Nasdaq.

The jobless rate in the U.K. was 5.5% in the three months to March, the Office for National Statistics said on May 13, the lowest since mid-2008. During the same period, pay rises picked up: Average weekly earnings increased an annual 1.9% including bonuses and 2.2% when only regular pay is taken into account.

Economists expect wages to keep rising throughout 2015, as falling unemployment gives employees more leverage to negotiate pay packets: Although the jobless rate keeps falling, the drop in the actual number of unemployed during the first quarter of 2015 was the smallest since mid-2013.

Payroll employment increases by 272,000 in May; unemployment rate changes little at 4.0%

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As prices remained subdued–inflation was flat in March–pay growth translated into hefty rises in living standards. Once inflation is stripped out, single-month rises in regular earnings were the strongest since September 2007, according to official figures.

However, living standards remain below where they were at the start of the downturn. Official data for 2014 shows that the disposable income of households–money families have after the effect of taxes and inflation–rose only 0.1% during the year.

Workers in the U.K. have only recently seen their living standards start to recover after a five-year squeeze, but the improvement has been mostly due to the sharp drop in global prices of oil and food.

Nevertheless, fatter paychecks and job growth add to hopes that consumers in the U.K. will keep driving the economy throughout 2015, after official estimates showed gross domestic product grew at a slower pace in the first quarter.

Analysts warn that a long-term improvement of living standards will depend on productivity growth. Britain’s productivity levels, which are a key gauge of economic efficiency, have remained disappointingly low in recent years: According to the ONS, labor productivity in the U.K. was 17% below the average of the Group of Seven leading nations in 2013, the widest gap in more than two decades.