Inflation continues to outstrip wage growth despite nominal regular pay increasing at its highest rate outside of the Covid-19 pandemic, largely as a result of increases to the national living wage.
The June 2023 labour market figures from the Office for National Statistics (ONS), showed that growth in employees’ average regular pay excluding bonuses was 7.2% in February to April 2023, while average total pay including bonuses increased by 6.5%.
However, when adjusted for inflation, pay fell in February to April 2023 compared to the same period last year by 2.0% for total pay and 1.3% for regular pay.
In April 2023, CPI inflation fell to its lowest level in a year, 8.7%, down from 10.1% in the year to March.
June 2023 labour market
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Jonathan Boys, labour market economist for the CIPD, said workers were “swimming against the tide” as living costs continued to soar.
“Despite strong wages growth, prices are rising faster with the cumulative result that every month the average pay packet doesn’t go as far as it did the month before,” he said.
“The central bank will be considering today’s labour market stats next week when it makes an interest rate decision. Some heat is coming out of the labour market as evidenced by the continued fall in vacancies which is driven by economic uncertainty, but wage growth remains strong with regular pay growing by 7.2% meaning we are odds-on for another rate rise.”
The rise in the minimum wage in April had had a “significant” impact on the pay figures for that month, said Andrew Hunter, co-founder of the job board Adzuna. The national living wage rose to £10.42 an hour in April 2023 for those aged 23 and over.
In March to May 2023, the estimated number of vacancies fell by 79,000. This was the 11th consecutive period where job postings have declined.
Vacancies in financial and insurance activities contracted the most (18.7%), followed by transport and storage (18.3%). Real estate activities saw the strongest demand for staff (29.2%), followed by other service activities (25.9%).
The number of people in employment, including the self-employed, reached a record high. The UK employment rate grew slightly to 76.0%, 0.2 percentage points higher than November 2022 to January 2023, but the unemployment rate for February to April 2023 also increased by 0.1 points to 3.8%.
Economic inactivity due to long-term sickness remained an issue, the June 2023 labour market figures suggested. Although the economic inactivity rate decreased by 0.4 percentage points on the quarter to 21.0%, those inactive because of a long-term health issue increased to a new record.
Boys said: “Removing barriers to work for this group should be a priority and often this means keeping people in employment. A stronger focus on occupational health, catching conditions before they become chronic, is essential. Reform of statutory sick pay should also be a priority.”
Many bosses are facing a double whammy of staff sickness and a labour market that’s leaving many employers struggling to find alternatives” – Jim Moore, Hamilton Nash
Jim Moore, employee relations expert at HR consultants Hamilton Nash, said: “High levels of Covid-19 and respiratory illnesses are propping these numbers up.
“Forward-thinking businesses need to look at new ways to help those suffering from chronic illness in the wake of the pandemic. Employers need to be aware that long Covid may qualify as a disability under the Equality Act 2010.
“Many bosses are facing a double whammy of staff sickness and a labour market that’s leaving many employers struggling to find alternatives.”
Meghan Farren, general manager at KFC UK & Ireland, said further investment in skills and training was needed across the economy. The fast food chain runs a youth employability programme, Hatch, and 65% of its workforce is under the age of 25.
“While there are buckets of talent across this country, for many years the UK has underinvested in young people. We believe untapping the potential of the UK’s youth could provide the solution to filling these open roles, growing businesses like ours, improving access to opportunity and creating social mobility in all corners of the UK,” she said.
Neil Carberry, chief executive of the Recruitment and Employment Confederation, said: “The jobs market remains reassuringly resilient in the face of economic headwinds and sluggish growth. While employers are feeling uncertain about the future they still need to hire, in part because of ongoing labour shortages. These shortages are combining with high inflation and changes to the national living wage to drive very strong pay growth.
“For jobseekers, this should be a welcome picture – there are opportunities out there to get into work or move to raise wages. For companies, there is little sign of a change from the need to really focus on their talent strategy – recruiters are here to help with this, including changing the mix of skills as firms invest more in technology.
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“For policymakers, this picture of shortages should be a concern, as it is likely to constrain a recovery in growth. An industrial strategy that includes workforce thinking is essential to tackling economic inactivity, developing new skills and a pragmatic approach to immigration.”
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