The UK labour market report released today shows that the labour market is continuing to improve although at a slower pace compared to the beginning of 2014. The ILO unemployment rate (3M) in December declined further to 5.7% from 5.8% in November (Danske Bank Markets: 5.8%, consensus: 5.8%) and has fallen by 0.3 percentage points since October. The last time the unemployment rate was this low was in August 2007.
The number of unemployed has declined by 97,000 from Q3 to Q4. Employment is up by 103,000, while the number of economically active people increased by 6,000. The fall in the claimant count level indicates that unemployment will continue to fall in the coming months.
We are not far from the Bank of England's estimated medium-term equilibrium unemployment rate at 5.5%. According to projections from the Inflation Report released last week this could be the case as early as Q2. This indicates that the slack in the labour market is diminishing. The Bank of England estimates that the slack is in the region of 0.5% of GDP.
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