Jim Armitage: The dole queues may be shrinking, but wages are falling in real terms

Outlook Another day, another arrow of good news fired into the recession’s retreating posterior.

Yesterday’s figures on unemployment show the misery of worklessness really does appear to be coming under control, with Britain now back at a jobless rate of 6.5 per cent – the lowest since late 2008. Over the past year, the number of unemployed has tumbled by 383,000.

The speed with which the dole queues have shrunk have defied the doom-mongers (myself included) – even taking into account the continued high numbers of those working against their wishes in part-time or self-employed positions. Can it really only have been last August when the Bank of England’s Governor Mark Carney was giving us “forward guidance” that interest rates wouldn’t start rising until unemployment had fallen from the then 7.8 per cent to 7 per cent?

City economists like to sneer “I told you so” on this score. They said at the time that 7 per cent unemployment was only just around the corner given the accelerating economy, and that Mr Carney’s semaphore guidance flags were all tangled up from the outset. Undignified though such sniggering is, the City scribblers have been proved well and truly right.

But perhaps we should now be asking: for how long?

Much of the rise in employment is based on hiring on building sites and elsewhere in the property industry, which has been enjoying the housing boom.

As (patchy) evidence begins to emerge that the market may finally be slackening its idiot pace, one wonders whether people will feel less wealthy and, as a result, less prone to spend.

Without that feelgood factor for homeowners of double-digit house price growth, there isn’t a great deal else out there encouraging them to spend. Certainly, if yesterday’s workforce figures are anything to go by, while people may have jobs, their pay has barely moved on a year ago. Indeed, if you factor in the recent rise in inflation, wages are actually falling in real terms – by as much as 1.6 per cent if you take wage rises in the three months to May and June’s inflation level.

Not only that, but within the pay figures, according to the CEBR economics think-tank, big rises in pay in a small number of industries where there are skills shortages could be actually flattering the overall numbers. If you’re not in construction, manufacturing or IT, pay is even less generous than the headlines suggest.

The City boffins hadn’t bargained on this when they were mocking the Bank’s forecasters last year. But they should consider sluggish salaries when urging the Governor to start whacking up interest rates.