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‘Concern’ as wage growth remains robust while unemployment rises

  • 11/06/2024
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‘Concern’ as wage growth remains robust while unemployment rises
The unemployment rate has risen again while wage growth remains resilient. This combination is likely to be of concern for the Bank of England, experts suggest.

Unemployment has jumped from 4.3% to an estimated 4.4% in the three months to April 2024, taking the number to just over one-and-a-half million people.

This is the fourth increase in a row, taking it to its highest level since September 2021.

Turning to average wages, the Office for National Statistics (ONS) noted that growth in regular earnings (excluding bonuses) was 6% – the same level as for the previous three-month period.

Meanwhile, annual growth in employees’ average total earnings (including bonuses) was 5.9%. This was also the same level as in the previous quarter.

Indeed, the figures capture April, which is when the National Living Wage increased for millions of workers.

However, annual growth in real terms – once inflation has been factored in – shows regular pay at 2.3% and total pay at 2.2%, “meaning incomes are comfortably outstripping price rises”, according to Alice Haine, personal finance analyst at Bestinvest.

Elsewhere, the latest data revealed that the UK employment rate for February to April at 74.3% remains below estimates of a year ago, and it also decreased in the latest quarter. In total, there are an estimated 32.9 million people in employment, down 139,000 from the previous quarter.


Wage growth data ‘concerning’

The UK economic inactivity rate for the quarter (22.3%) is also above estimates of a year ago (+0.8pp), largely down to those aged 16-24 years. But the increase in economic inactivity in the latest quarter was largely among those inactive because they were looking after family and home, long-term sick, or temporarily sick.

Meanwhile, the claimant count – a measure of people who are receiving a benefit principally because they’re unemployed – increased in the month to May to 1.6 million.

But the number of vacancies in March to May came to 904,000 – a decrease of 12,000 or 1.3% from December to February 2024. Overall, vacancies are 31% below the peak in May 2022.

Haine said: “The big area of concern is the robust pay growth data, which came in strong despite fewer job openings and more redundancies leading to a surge in people hunting for a new role.

“Resilient wage growth data in the face of rising unemployment level is concerning for the Bank of England, who will want to assess whether lingering tightness in the labour market will prove inflationary. Wage growth had been gradually easing since the summer of last year before hitting the pause button in February, with the latest figures coinciding with a time when inflation is falling more dramatically.”

She added: “While a base rate cut this month appears off the table, not only because we are in the midst of an election and the central bank will want to avoid any decision becoming politicised, but also because inflation has not fallen quite as far as policymakers would have hoped, it means households will be tenterhooks to see what happens in August.”

Ruth Gregory, deputy chief UK economist at Capital Economics, said: “The stickiness of wage growth in April will be a lingering concern for the Bank of England. But with employment falling sharply and the unemployment rate climbing, we think wage growth will soon be back on a firm downward path.

“Overall, the stickiness of wage growth may not stop the bank from cutting interest rates for the first time in August, as we are forecasting, as long as other indicators such as pay settlements data and next week’s CPI inflation release show decent progress. “

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