Britain’s Unemployment Rate Unexpectedly Fell to its Lowest Level in 11 Years

Britain's unemployment rate unexpectedly fell to its lowest level in 11 years in the first three months after the Brexit vote, official data showed on Wednesday, but there were signs that a slowdown in the labour market could be coming.

The jobless rate edged down to 4.8 percent in the July-September period, compared with a median forecast of 4.9 percent in a Reuters poll of economists.

But the increase of 49,000 in the number of people in work was the slowest since the three months to March, and the number of people claiming unemployment benefit gathered speed in October, the Office for National Statistics said.

Britain's economy weathered the initial shock of the Brexit vote better than the Bank of England and almost all private-sector economists expected.

However, many firms are expected to act cautiously as they wait for more clarity on what Britain leaving the European Union means for them. The BoE expects the jobless rate to stand at 5.6 percent in two years' time.

“There are now clear signs of softness in the labour market following the vote to leave the EU,” Daniel Vernazza, an economist with Italian bank UniCredit, said, adding he expected a “slow burn” of gradually rising unemployment.

The number of people claiming unemployment benefits in October rose by 9,800, the biggest rise since May, the ONS said. Changes to the benefit system meant September's claimant count increase was revised up to 5,600 from a previous reading of 700.

“The moderate upward trend in the claimant count now is clear, suggesting that the main unemployment rate will begin to drift up soon,” Samuel Tombs, an economist at consultancy Pantheon Macroeconomics, said.

For people in work, wage growth is holding up. Total earnings including bonuses rose by 2.3 percent, unchanged from their pace in the three months to August, though below a Reuters poll forecast of 2.4 percent.

Excluding bonuses, earnings rose by 2.4 percent year-on-year, the fastest rate in a year and in line with expectations.

A survey of employers published on Monday by the Chartered Institute of Personnel and Development showed employers expected to make basic pay settlements of just 1.1 percent in 2017, squeezing living standards as inflation is expected to rise to around 3 percent after the recent fall in sterling.

Britain's trade unions said pay growth adjusted for inflation was already the slowest since early 2015. They urged finance minister Philip Hammond to give the economy a boost by investing in rail, roads, new homes and clean energy when he announces his first budget plans next Wednesday.

“And he must give a direct boost to pay by lifting the public sector pay cap and increasing the minimum wage,” Frances O'Grady, the head of the Trades Union Congress, said.

Separately, the ONS said productivity growth slowed in the third quarter. Output per hour rose by 0.2 percent, slowing from growth of 0.6 percent in the second quarter and the weakest quarterly improvement since late 2015.

By William Schomberg and David Milliken

(Editing by Jeremy Gaunt.)