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UK unemployment at 42-year low fails to spur wage pickup

Sep 13 2017 11:36
Jill Ward

London - For British workers, the lowest jobless rate in more than four decades isn’t enough to maintain their standard of living.

Basic wages rose an annual 2.1% in the three months through July, unchanged from the second quarter and below market forecasts, Office for National Statistics figures on Wednesday showed. Pay fell 0.4% when adjusted for inflation, which is now running just shy of 3%.

The figures underscore the dilemma facing Bank of England policy makers over when to raise interest rates. Those arguing to keep the benchmark at a record low point to the growing strain on consumers from the sterling-driven surge in prices.

The pound erased an advance against the dollar after the report, and slid for the first time in four days versus the euro.

That pressure comes against a backdrop of record employment and growing skills shortages. The jobless rate fell to 4.3%, the lowest since 1975 and below the BoE’s equilibrium rate.

Governor Mark Carney said that “an element of Brexit uncertainty” is preventing firms from awarding bigger wage increases. Other explanations include poor productivity and companies clamping down on wages to offset rising import costs.

The squeeze has taken a toll on living standards, especially for public-sector workers, who have experienced a 1 percent cap on salary increases as part of stringent austerity since 2010.

Prime Minister Theresa May said this week that the government will relax the cap for police and prison officers but Trades Union Congress General Secretary Frances O’Grady responded by demanding “a pay rise across the board” for Britain’s 5 million public-sector workers.

Employment surge

The number of people in work surged 181 000 to 32.1 million in the latest three months, the biggest increase since the end of 2015. Unemployment fell 75 000 to 1.46 million, the steepest drop in two years. Inactivity also declined sharply.

Total pay including bonuses rose 2.1%, the same as in the second quarter, with pay in July alone growing just 1.4%, the ONS said. Adjusted for inflation, it fell a three-monthly 0.4%.

Bets on the Bank of England increasing interest rates increased this week after inflation climbed to 2.9% in August, matching the highest pace in four years. Traders are now largely pricing in a hike by the end of 2018, though some economists remain unconvinced.

At Bloomberg Intelligence, Dan Hanson and Jamie Murray expect Brexit uncertainty to increasingly weigh on growth and the labor market, leading the BOE to keep rates on hold until 2019.

There were some signs of weakness in the latest figures, with vacancies in the economy falling by 7 000 in the quarter.

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uk  |  unemployment  |  economy

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