UK wage growth picks up, jobless rate at 2-yr low

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LONDON, Sep 12 (Reuters) British wages rose more than expected in the three months to July and the number of people claiming jobless benefits fell to give the lowest unemployment rate in two years, official data showed today.

The Office for National Statistics said average earnings rose 3.5 percent, up from an upwardly revised 3.4 percent in the three months to June and above forecasts for a reading of 3.4 percent.

The pound rose after the stronger than expected data although economists said the figures will do little to alter expectations that interest rates have peaked at 5.75 per cent.

''For the time being, wage inflation gives little ground to argue for an interest rate hike,'' said Audrey Childe-Freeman at CIBC World Markets.

Despite a stronger than expected rise in overall earnings, public sector wages grew at their weakest rate since May 1998.

Prime Minister Gordon Brown has come under growing pressure from trade unions to relax his stance on keeping public sector pay rises linked to the government's 2 per cent inflation target.

Unions say that does not reflect the real rise in living costs and have threatened to strike in protest, but Brown said this week he was determined to maintain pay discipline to help control inflation, create jobs and keep the economy stable.

''The divergence between public and private sector wage growth shows the squeeze that is being placed on public sector pay,'' said Philip Shaw, chief economist at Investec.

Separate official figures on public sector employment showed the number of people employed by government fell 44,000 in the second quarter on the year to around 5.8 million. Job cuts were mainly in the health and civil services.

On the month, earnings surged at their fastest pace since February, up 3.8 per cent. The ONS said the pick-up was driven mainly by the timing of bonus payments in the financial sector.

The number of people claiming jobless benefits fell much less than expected in August, although the level has been declining for nearly a year, taking the unemployment rate down to its lowest since April 2005 at 2.6 per cent.

The claimant count fell 4,200 last month, almost half the amount expected by economists.

The internationally-comparable ILO jobless rate came in at 5.4 per cent as expected.

REUTERS SG HT1452

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