This week's figures showed that the unemployment rate fell by just 0.1 percentage points in the last three months, to 7.7 per cent, well above the 7 per cent rate the Bank of England has said it wants to see before it considers raising interest rates.
But the small drop in joblessness is not because the economy is weak. Employment rose by 155,000 (0.4 per cent) in the last three months. But this was accompanied by a drop in unemployment of just 18,000. This difference is due in part to a rising population, in part to previously 'inactive' people of working age joining the labour force - the numbers of long-term sick fell by 62,000 in the last three months - and in part to a rise in employment among over-65s, who were not previously in the labour market. If these trends continue - and there are almost 2.3m people of working age who are out of the labour market but say they would like to work - then unemployment will stay above the 7 per cent threshold even if the economy grows well.
Worse still for savers, economists expect inflation to stay above 2 per cent. Although this week's figures showed that wages are almost stagnant - rising by just 0.4 per cent in the year to August - they imply that companies' unit wage costs are rising because productivity is also stagnant; total hours worked rose 0.7 per cent in the last three months, only 0.2 percentage points less than the NIESR's estimate of GDP growth. Such cost rises - allied to impending rises in utility bills - will prevent inflation falling by much. Nida Ali of EY's Item club says: "We see inflation remaining above the 2 per cent target in the foreseeable future."
But most economists don't expect it to be so high as to force the Bank to raise rates quickly. James Knightley at ING Bank expects interest rates to only start rising in early 2015. And Chris Williamson at Markit warns that a rise while real wages are still falling "would set the economic recovery back significantly".
With rates staying low and inflation staying over 2 per cent, interest rates will remain negative in real terms for some time yet.
