UK unemployment falls as private sector jobs hit all-time high

Employment minister Mark Hoban says latest figures are encouraging, but more work needs to be done to decrease jobless number Link to this video

Unemployment in Britain recorded its sharpest quarterly drop in more than a decade in the late summer and early autumn as strong jobs growth by private companies more than offset labour shedding in the public sector.

Despite signs that the economy has failed to maintain its rapid pace of growth in the summer, figures from the Office for National Statistics showed the number of joblessfell by 86,000 to 2.51 million in the three months to October.

But with the latest official data again showing that earnings had failed to keep pace with inflation, the Bank of England's chief economist, Spencer Dale, said workers were much worse off than they were before the financial crisis began five years ago.

The ONS reported that employment was 499,000 higher in the three months to October 2012 than it had been in the same period a year earlier to stand at 29.6 million – its highest ever level.

But the ONS said average earnings excluding bonuses were rising at an annual rate of 1.7% – well below the current inflation rate of 2.7%.

Dale said the UK was still adjusting to the post-crisis world and singled out the hefty fall in productivity that has seen employment rise but output stagnate.

"The harsh but inescapable reality of these developments – and the real adjustments they necessitate – is that households and families in our economy are worse off. Much worse off," Dale said.

Speaking in London, he praised the labour market's "extraordinary flexiblity", but noted that the pay packet of the average worker bought 15% less than it did in the pre-crisis period.

"No wonder that people are finding life tough," Dale said, adding: "One of the most striking – and indeed encouraging – features of the performance of our economy since the financial crisis are the falls in real wages that have been achieved without a very sharp rise in unemployment. Unemployment has indeed risen, but by far less than would have been the case had the labour market displayed the resistance and rigidities of the past."

The monthly ONS figures for the labour market showed that employment in the quarter ending in October 2012 was 40,000 higher than in the previous three months. Private sector employment was up by 65,000 to a record 23.9 million while public sector employment was down by 24,000 to 5.7 million - its lowest level since 2002.

Despite job creation over the past year, unemployment is still 879,000 higher than it was in the summer of 2007, when the financial crisis began. The employment rate peaked at 73% in the early months of 2008 and currently stands at 71.2%.

An alternative measure of unemployment – the claimant count – showed that the number of people on jobseeker's allowance fell by 3,000 to 1.58 million in November.

Employment minister Mark Hoban said it was particularly encouraging that youth unemployment had fallen to its lowest level in three and a half years. "But we're not complacent and know there are still lots of challenges ahead, which is why the Government will continue working hard to help those people who want to get on in life and allow the UK to compete in the global race."

John Walker, chairman of the Federation of Small Businesses, said: "It is good news that the labour market is inching in the right direction and that youth unemployment is falling. However, latest forecasts from the Office for Budget Responsibility suggest that unemployment will peak at 8.2% which may mean further job losses in the medium term.

"Small firms are key to hiring the economically inactive – an area in which unemployment rose by 60,000. Small firms that want to expand and take on more staff need an extra incentive. Extending the national insurance contributions holiday to all micro firms across the whole of the UK would be a good starting point. This would help to create an additional 45,000 jobs while adding £1.3bn to GDP."