Wage growth falls short despite large drop in unemployment

Governor of the Bank of England Mark Carney (GETTY IMAGES)

The great pay squeeze on workers is dragging on despite the booming economy, the latest official figures showed yesterday.

The Office for National Statistics reported that average total pay, which includes bonuses, rose by 0.7 per cent in the year to July, less than half the 1.6 per cent rate of consumer price inflation recorded in that month. The three month average growth rate of wages was just 0.6 per cent, confounding predictions earlier this year that workers would receive real pay rises by the middle of this year.

The headline unemployment rate fell to 6.2 per cent, the lowest level since October 2008 and those claiming Jobseeker’s Allowance dipped below 1 million for the first time in six years. Yet the growth in employment in the three months to April was 74,000, the smallest quarterly increase in over a year.

Analysts were divided on how the data would affect the timing of the Bank of England’s next rate rise. Michael Saunders of Citigroup said the number of vacancies was up 25 per cent year on year in the three months to August, the fastest growth since 2002, suggesting that labour market slack is being used up rapidly.

However, Samuel Tombs of Capital Economics said that weak wage growth showed that there was still slack in the labour market. “[The] data strengthened the case for a further period of inaction,” he said.

There were also renewed questions over the quality of the jobs created over the past year. The number of part-time employees grew by a further 52,000 year on year. There was also a 368,000 increase in the number of self-employed workers over the quarter.

Almost half of the increase in employment over the past year has been accounted for by rising self-employment. Some analysts have argued that some of this self-employment surge is disguised unemployment. “More people are working, but growth based on more low-paid jobs isn’t working for Britain,” said Frances O’Grady, General Secretary of the TUC.

The latest minutes from the Bank of England’s Monetary Policy Committee showed that no members joined Martin Weale and Ian McCafferty in voting for interest rate rises in September. The vote remained 7-2 against raising rates. Though the MPC upgraded its growth forecasts for the third quarter to 0.9 per cent, it noted the “downside risk” to growth in the medium term had increased because of the difficulties of the eurozone.