Mixed jobs picture signals need for cautious approach on interest rates

The rise in employment and unfilled vacancies recorded in the latest official statistics show that demand for staff remained strong at the end of 2004. With average earnings already rising by an underlying rate of 4.4% in a tight labour market these figures might raise fears of renewed inflationary pay pressure in the coming months. However, a welcome fall in the numbers of economically inactive people in the three months to November suggests that labour supply constraints may be starting to ease, according to John Philpott, Chief Economist at the Chartered Institute of Personnel and Development.

Dr Philpott said:
Taken together with CIPD quarterly survey evidence suggesting a benign outlook for pay inflation in 2005, and a variety of potential threats to economic growth, todayís figures add weight to the view that the Bank of England should for the time being keep interest rates on hold.

Todayís good news on the economically inactive - especially carers and the long-term sick - also suggests that the governmentís welfare for work measures, such as the New Deal, are bearing fruit and represent an important part of the employment policy armoury.