Latest official figures have shown that there are more people in employment than ever, but wage rises are falling below the level of inflation.

Unemployment at lowest in more than a decade

Data from the Office for National Statistics (ONS) showed 372,000 more people in work at the beginning of May than a year earlier while unemployment fell 50,000 in the quarter – the lowest in more than a decade. Additionally, the number classified as economically inactive fell by 30,000 to 8.8 million, equalling the lowest rate on record.But, a day after the ONS revealed inflation had risen to 2.9 per cent, it announced that wage increases, including bonuses, were running at 2.1 per cent in April, down 0.2 per cent on the previous month. And, excluding bonuses, the rate of increase was just 1.7 per cent.

Real pay is down on the year

Matt Hughes, senior statistician at the ONS, said, “Many labour market indicators remain strong, with the employment rate at a joint record high and the inactivity rate at a joint record low.“On the other hand, with wage growth continuing to slow and inflation still rising, real pay is down on the year. This is now the case whether or not bonuses are taken into account.”Meanwhile the number of job vacancies in the quarter to May was estimated at 770,000, close to a record high and 9,000 more than the previous quarter.

Consumers are under pressure

Ben Brettell, senior economist at Hargreaves Lansdown, commented, “The UK economy faces a dangerous cocktail of political uncertainty, slowing growth and shrinking real wages. First-quarter GDP figures were disappointing, while a recent report from Visa confirmed consumers are under pressure, with spending falling 0.8 per cent year-on-year in May.“Households are being squeezed from both directions, with inflation rising faster than expected and wages rising more slowly. This doesn’t bode well for economic growth – the UK economy is heavily reliant on the consumer and falling real incomes will eventually translate into lower retail sales.”The squeeze on wage growth will also put more pressure on the Bank of England to consider raising interest rates to curb inflation, said Neil Wilson, economist at ETX Capital.“Wages are climbing at a rate of just 2.1 per cent, or just 1.7 per cent when you exclude bonuses. This run rate is just not enough to sustain consumer spending where it has been of late when inflation is accelerating. Average earnings in real terms slumped by 0.6 per cent, or 0.4 per cent including bonuses. This will have a material effect on GDP growth in the second quarter.”

End of one per cent cap on public sector pay rises?

John Hawksworth, chief economist at PwC, suggested the government might now have to bow to mounting pressure and end its one per cent cap on public sector pay rises.“With inflation likely to be heading above three per cent later this year, the squeeze on real pay growth is now getting serious and is likely to dampen real consumer spending growth for some time to come. The cost of Brexit to people’s living standards due to the fall in the pound is becoming ever more apparent,” he said.“The squeeze is even more severe in the public sector, where pay is only rising at around one per cent. The sustainability of this pay policy for nurses, doctors, teachers and other key public service workers will come increasingly into doubt as inflation rises to three per cent and above later this year.”

Employment remains at record levels

But Work and Pensions Secretary David Gauke said he was encouraged that employment remained at record levels. “This government wants to give everyone the opportunity to succeed, regardless of where they live or their background.“This is yet another strong set of record-breaking figures with employment up and unemployment down, fuelled by full-time opportunities. This is good news for families as we continue to build a stronger, fairer Britain.”But Debbie Abrahams MP, Labour’s shadow work and pensions secretary, said, “We welcome the overall increase in employment, but are deeply concerned that millions remain in low-paid, insecure work.“The government has also failed to close the employment gap faced by women, disabled people and BAME groups, who have too often borne the brunt of austerity cuts.”For related news and features, visit our HR section.Access hundreds of global services and suppliers in our Online Directory  Get access to our free Global Mobility Toolkit

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