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 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.”