UK Unemployment Rises in May

        By Jon Sindreu and Jason Douglas
        LONDON--Unemployment rose in Britain for the first time in over two years during the three months to May, while pay growth accelerated, developments that may strengthen the case for the Bank of England to raise interest rates soon.
        The jobless rate edged up to 5.6% during the period, the Office for National Statistics said Wednesday, up from 5.5% in the first quarter of the year. About 15,000 people joined the ranks of the unemployed, with another 30,000 becoming inactive--those not seeking employment or not available to work, who don't count as jobless.
        At the same time, average weekly earnings--including both regular pay and bonuses--increased at an annual 3.2% during the period, the fastest pace in more than five years.
        This barrage of official figures confirms the labor market in the U.K. has become tighter after recovering strongly last year. Economists expect the pickup in wages to continue throughout the rest of the 2015, as companies find it increasingly challenging to find good candidates to fill job openings.
        Pay rises are welcome news for British Treasury chief George Osborne, who has repeatedly pledged to move towards a "low tax, high wages" economy. Since 2008, the downturn has severely squeezed the living standards of families in the U.K.
        This latest rise in unemployment, however, is also a signal for policymakers that the British economy is nearing full capacity. Much of the economic growth during the recovery has been fueled by people who had lost their jobs during the financial crisis returning to the labor market. Economies need to increase their efficiency to keep growing as they near their full potential.
        But labor productivity, which measures how much employees produce for each hour of work, has long been stagnant in Britain. In 2013, it was 17% below the average of the Group of Seven leading nations in 2013, the ONS said, and it failed to recover even as the economy had a bumper 2014.
        This means the Bank of England could be compelled to tighten monetary policy earlier than expected if wage rises aren't matched by a pickup in productivity. If that were the case, inflation--which remains flat at the moment--could spike up and overshoot the central bank's 2% annual target in the medium term.
        Write to Jon Sindreu at jon.sindreu@wsj.com and Jason Douglas at jason.douglas@wsj.com
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        July 15, 2015 04:49 ET (08:49 GMT)

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