Unem­ploy­ment falls but wages fail to keep pace with in­fla­tion

Job­less rate at 4.3% is now at low­est level since 1975 Gig econ­omy helps to add jobs but not im­proved pay

The Guardian - - FINANCIAL - Phillip In­man

The UK’s unem­ploy­ment rate has fallen to its low­est level since 1975 but wage rises are fail­ing to keep pace with in­fla­tion de­spite the buoy­ant labour mar­ket.

The lat­est of­fi­cial fig­ures show av­er­age earn­ings in­creased by 2.1% in the three months to July. In that month in­fla­tion was recorded at 2.6%. The Of­fice for Na­tional Sta­tis­tics (ONS) – which uses a slightly dif­fer­ent mea­sure of in­fla­tion to cal­cu­late real wages – said the new data showed work­ers suf­fer­ing a 0.4% re­al­terms fall in the value of their pay pack­ets.

It was the fourth con­sec­u­tive month when in­fla­tion was higher than wage growth and il­lus­trates the pres­sure mount­ing on house­hold bud­gets.

Wages growth had started to ac­cel­er­ate in April fol­low­ing a steep drop to 1.8% growth in March, but the lat­est fig­ures ap­pear to show that re­cov­ery has stalled and could go into re­verse af­ter in­fla­tion soared to 2.9% in Au­gust.

The job­less rate fell to 4.3% from 4.4%, the low­est fig­ure for 42 years. An­a­lysts said the bur­geon­ing gig econ­omy, which has seen self-em­ploy­ment climb to 15% of the work­force, was be­hind the rise in jobs, lead­ing to only mod­est rises in pay.

Ed Monk, an as­so­ciate di­rec­tor at Fi­delity In­ter­na­tional, said spi­ralling in­fla­tion meant “UK house­holds will con­tinue to have their fi­nances stretched to break­ing point”.

Jeremy Cook, the chief econ­o­mist at the cur­rency firm WorldFirst, said there was “lit­tle to cel­e­brate” and peo­ple were “get­ting poorer due to wages that can’t keep up with in­fla­tion”.

Cook blamed the Brexit fears that are hang­ing over busi­nesses, cost-cut­ting that fol­lowed the fall in the pound and the con­se­quent rise in im­port costs.

Data from the ONS showed that the hos­pi­tal­ity sec­tor con­tin­ued to em­ploy more peo­ple while the num­ber of work­ers in pro­fes­sional and sci­en­tific jobs de­clined.

Over­all, the em­ploy­ment rate, which mea­sures the pro­por­tion of peo­ple aged from 16 to 64 who were in work, climbed to 75.3%, the high­est since com­pa­ra­ble records be­gan in 1971.

The num­ber of peo­ple in work rose by 181,000 to 32.1 mil­lion in the three months to July, while there were 1.46 mil­lion peo­ple unem­ployed – a de­cline of 75,000 and the big­gest drop for two years.

The num­ber of job va­can­cies reached a peak ear­lier this year of 784,000, and now stand at 774,000 – well above the high­est lev­els seen at the height of the 2007 boom, when they only reached a high of 704,000.

An­a­lysts had warned that va­cancy rates would de­cline af­ter the econ­omy strug­gled to a 0.2% GDP growth rate in the first quar­ter and 0.3% in the sec­ond. Em­ploy­ers were ex­pected to halt re­cruit­ment, if not lay off work­ers, in re­sponse to slow­ing 0.4% Real-terms fall in the value of pay pack­ets cur­rently ex­pe­ri­enced by work­ers, ac­cord­ing to the ONS, which also recorded in­fla­tion in July at 2.6% con­sumer spend­ing and weak busi­ness in­vest­ment – but so far there is lit­tle sign of that hap­pen­ing.

The Bank of Eng­land is not ex­pected to in­crease in­ter­est rates to­day when its mone­tary pol­icy com­mit­tee (MPC)meets, though it is likely to warn that ris­ing in­fla­tion might need to be calmed with a hike in credit costs if it con­tin­ues into next year.

Ian Ste­wart, the chief econ­o­mist at Deloitte, said: “Job cre­ation is a huge UK suc­cess story. The UK con­tin­ues to gen­er­ate ever-lower unem­ploy­ment and ever more jobs.

“But the re­ces­sion, and its af­ter­math, has weak­ened the link be­tween unem­ploy­ment and wages. In the past this de­gree of tightness in the jobs mar­ket would be push­ing wages higher. In­stead earn­ings growth has flat­lined in the last cou­ple of years.”

Sa­muel Tombs, the chief UK econ­o­mist at Pan­theon Macroe­co­nomics, said the lat­est labour mar­ket data was, on bal­ance, a set­back for the hawks on the MPC ar­gu­ing for higher in­ter­est rates.

“Ad­mit­tedly, em­ploy­ment rose in the three months to July, the fastest growth since the end of 2015,” he said.

“But the three-month av­er­age num­ber of job va­can­cies in Au­gust was 0.9% lower than in the pre­vi­ous three months, point­ing to a slow­down in em­ploy­ment growth ahead.”

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