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London - Slack in Britain's labour market has fallen to a four-year low and wages may be about to pick up, an analysis by the country's statistics agency showed on Wednesday, suggesting an interest rate rise could be moving nearer.
Last year the Bank of England said it would only consider raising rates when unemployment hit 7%. But after joblessness hit that level far sooner than forecast, the central bank said it would look at a broader range of data before tightening policy.
The numbers under the BoE's scrutiny include people working part-time who want full-time work, as well as people who have given up looking for work but would like a job.
A report from the Office for National Statistics on Wednesday suggested that the labour market was tightening quickly, based on that kind of broad range of measures as well the headline rate of unemployment.
"While the fraction of part-time workers who would prefer to work full-time is substantially above its long-term average, the potential hours they could supply is relatively limited compared with those that could be supplied by the unemployed," it said.
The ONS looked at the difference between the number of hours Britons worked and the number of hours they wanted to work. It counted part-time workers who want to work longer and those who want work but are not actively looking, in addition to people standardly classified as unemployed.
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The method is similar to a measure of British labour market slack created by economists David Bell and David Blanchflower, whose work has been cited by the BoE in its forecasts.
In the first three months of 2014, the ONS found Britons worked 974.5 million hours - 84.8% of the total 1.150 billion hours they wanted to work.
This was the highest percentage for any calendar quarter since the first three months of 2009, and compares to a trough of 83.2% of desired hours worked in early 2012.
This pattern mirrors that of unemployment which peaked at 8.4% in the last three months of 2011 and now stands at 6.8%, its lowest since the three months to January 2009.
It may also raise questions about whether the BoE's focus on labour measures other than the headline unemployment rate yields significantly greater insight.
Last month BoE Governor Mark Carney said there was still significant slack in the labour market and unveiled forecasts that showed gradual interest rate rises starting in about a year would be consistent with the BoE's 2% inflation target.
The ONS also said the percentage of desired hours that are worked was correlated with real wage growth.
Between 2001 and 2014, wages started to rise faster than inflation when the ratio of hours actually worked to desired hours was just over 85%.
This broadly matches the latest data, which shows that average wages in the three months to March were 1.7% higher than a year earlier, compared to an inflation rate of 1.6% in the year to March.
