Wage growth in the UK continues to fall behind the cost of living, official statistics for November to January have confirmed, while the number of job vacancies and levels of economic inactivity both grow.
The Office for National Statistics said that, adjusted for inflation, regular pay fell by 1% compared to the previous year, while real total pay grew by 0.1%.
The disparity is expected to worsen as the impact on Russia’s invasion of Ukraine drives up the cost of energy.
Today’s labour market statistics showed that unemployment continues to fall. The UK rate was estimated at 3.9%, 0.2 percentage points lower than the previous three-month period, and returning to pre-pandemic levels.
But economic inactivity was estimated at 21.3%, 0.1 percentage points higher than the previous quarter, and 1.1 percentage points higher than before the pandemic.
Pay and inflation
Job vacancies rose to a new record of 1.318 million in the three months to the end of February, an increase of 105,000 on the previous quarter, with half of all industry sectors showing record highs.
The ratio of vacancies for every 100 filled jobs reached a new record high of 4.4, the twelfth consecutive period of growth.
Neil Carberry, chief executive of the Recruitment and Employment Confederation said: “Businesses across the country are doing what they can on pay, both for existing staff and to help them hire in a jobs market experiencing a severe labour shortage.
“But rising inflation both makes that effort hard, and reduces the gains workers feel from pay rises. In real terms, average pay has fallen compared to last year. Now is not the right time to be increasing taxes on work for both companies and workers. Ahead of the spring statement, we’re urging the Chancellor to delay the upcoming rise in national insurance – the UK’s biggest business tax, as well as an additional income tax for workers.”
He added that to reduce the pressure on the economy and keep inflation down the government should focus on ensuring employment rates and hours worked recover to pre-pandemic levels.
“Inactivity is still rising, so firms and government need to work together to address this,” he added. “Recruiters have a key role to play here, from helping government with activation schemes to supporting employers with new forms of job offer to tempt people back into work.”
Pressure is mounting on chancellor Rishi Sunak to address falling real pay and growing vacancies in next week’s Spring budget statement.
Older people are leading this exodus, with half a million fewer people aged over 50 in the labour market than two years ago” – Tony Wilson, IES
Jonathan Boys, labour market economist for the CIPD, said: “The low unemployment / high vacancy environment has created a dynamic in which competition for staff is fierce. This will have some impact on wages. However, regular pay is already struggling to keep up with inflation, and we expect this trend to continue.
“We are at the foothills of the 2022 living standards squeeze. Next week the OBR will publish updated economic forecasts to accompany the Chancellor’s spring statement. These will likely show that the war in Ukraine will push inflation higher and make it last longer. Government policy will no doubt respond with policies to cushion the blow to household finances but there is a role for employers too.
“Employers aren’t immune from price rises but supporting people to achieve a decent standard of living is an essential part of good work and responsible business. Money worries can also affect job performance, so there are implications for the bottom line too. Employers can improve the financial security of their workers by paying a fair and living wage, but it’s just as important that they provide financial wellbeing support. ”
Tony Wilson, director at the Institute for Employment Studies (IES) said: “People shouldn’t be fooled by the fall in headline unemployment in today’s figures. Unemployment is falling because people are leaving the labour force at a worryingly high rate, with one hundred thousand fewer in the labour market than just three months ago.
“Older people are leading this exodus, with half a million fewer people aged over 50 in the labour market than two years ago. This is the largest fall since comparable records began 30 years ago, and is being particularly driven by fewer older women in work. This is happening in spite of continued record vacancies, and the tightest jobs market for employers in at least 50 years.
“With inflation rising, real pay falling and fewer people in work, we need urgent action at the Budget this month to boost employment and earnings, particularly for older people out of work. Employers need to step up too, and make sure that jobs are advertised and designed in ways that are accessible and inclusive for older people.”
Nye Cominetti, senior economist at the Resolution Foundation, agreed: “The huge increase in older workers exiting the labour market suggests we may be reaching the limits of Britain’s jobs recovery.
“The picture on pay is more mixed, with wages rising fastest in high paying sectors like finance and among high earners. But overall surging inflation will wipe out any wage gains in 2022. Britain’s real pay squeeze, which started as far back as summer 2021, will get deeper in 2022, and is unlikely to end until summer 2023.”