Picture: ISTOCK
Picture: ISTOCK

London — UK employment rose to a record high in the three months to end-May after the economy created jobs at a stronger than expected pace.

The number of people in work rose by 137,000, taking the employment rate to 75.7%, the highest since records began in 1971, the Office for National Statistics said Tuesday.

Unemployment held at a 43-year low of 4.2%.

Pay growth eased during the period, with wages excluding bonuses rising by 2.7%, as forecast.

However, the slowdown may do little to ease concern among Bank of England policy makers about inflationary pressures building in the labour market.

Money markets are pricing in about an 80% chance of an interest rate increase in August, a move also expected by more than 70% of economists in the latest Bloomberg survey.

The pound rose following the labour market data and was at $1.3261 at 9.34am London time, up 0.2% on the day.

The figures point to healthy demand for labour as the economy picked up from a snow-blighted first quarter.

The number of vacancies rose to the highest since records began in 2001 and inactivity — those neither in work nor looking for a job — dropped by 86,000 to a record low of 21%.

"It’s clear that the labour market is still growing strongly," said Matt Hughes, a senior statistician at the ONS.

With wage growth running ahead of inflation, households are enjoying a return to real spending power after a year-long pay squeeze. They may not be out of the woods just yet though, with a report tomorrow forecast to show inflation picked up again in June.

In May, private-sector pay growth picked up to 2.8%, but the public sector saw a slowdown. Unemployment fell to 4% in the month. Earnings growth including bonuses slowed to 2.5% between March and May.