Monday, May 27, 2024

UK real pay grows at fastest rate in two years as unemployment rises

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The level of real pay for UK workers is rising at its fastest rate in more than two years despite a cooling of the labour market that has led to rising unemployment and falling job vacancies, the latest official figures show.

Fresh data from the Office for National Statistics (ONS) showed the mild recession in the second half of 2023 has had an impact on demand for workers but has been slower to affect wages.

The ONS said unemployment rose by 166,000 between the final three months of 2023 and the first three months of 2024, pushing up the jobless rate from 3.8% to 4.3%.

Employment fell by 178,000 over the same period, while further evidence of a cooling labour market came from a drop in job vacancies, down by 26,000 to 898,000 in the three months to April.

The UK’s economic inactivity rate jumped to 22.1% in January to March, up from 21.9% in the final three months of 2023. The number of people inactive because of long-term health problems rose by 20,000 to 2,820,000 in the first quarter of 2024 – a new record high.

ONS figures for earnings showed total pay – including bonus payments – was 5.7% higher in the three months to March than a year earlier, unchanged on February. Regular pay, which strips out bonuses, was also unchanged, recording growth of 6%.

Annual inflation as measured by the consumer prices index stood at 4% in January, but fell to 3.4% in February and 3.2% in March.

Earnings growth and the demand for workers are two of the indicators being closely watched by Bank of England interest-rate setters and the latest figures will provide a mixed message for Threadneedle Street as it considers whether to cut borrowing costs next month.

Speaking on Tuesday, the Bank’s chief economist, Huw Pill, said it was “not unreasonable” to think the central bank could consider cutting interest rates – currently at 5.25% – over the summer. Financial markets are pricing in a roughly 50% chance the Bank will start cutting rates at its meeting next month.

The chancellor, Jeremy Hunt, said: “This is the 10th month in a row that wages have risen faster than inflation, which will help with the cost of living pressures on families. And while we are dealing with some challenges in our labour supply, including pandemic impacts, as our reforms on childcare, pensions tax reform and welfare come online, I am confident we will start to increase the number of people in work.”

Alison McGovern, Labour’s acting shadow work and pensions secretary, said: “The morning after Rishi Sunak told us his plan was working, these damning new figures prove that things are just getting worse: employment down, economic inactivity up and unemployment rising.

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“It’s no wonder there are now a record number of people locked out of work due to long-term sickness, given NHS waiting lists are spiralling and the Tories have pushed our NHS to its knees.”

Liz McKeown, an ONS director of economic statistics, said: “We continue to see tentative signs that the jobs market is cooling, with both employment from our household survey and the number of workers on payroll showing falls in the latest periods.

“At the same time the steady decline in the number of job vacancies has continued for a 22nd consecutive month, although numbers remain above pre-pandemic levels. With unemployment also increasing, the number of unemployed people per vacancy has continued to rise, approaching levels seen before the onset of Covid-19.

“Earnings growth in cash terms remains high, with the recent falls in the rate now levelling off while, with inflation falling, real pay growth remains at its highest level in well over two years.”

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