UK wage growth slows in June even as jobless rate sinks to just 4%

Total pay was up 2.4 per cent in the three months to June, slipping back from the 2.5 per cent rate seen in May

The combination of subdued pay while the jobless rate continues to dip has left economists puzzled
The combination of subdued pay while the jobless rate continues to dip has left economists puzzled

UK wage growth slowed unexpectedly in June despite unemployment rates sinking to just 4 per cent, official data shows.

The Office for National Statistics reported that average weekly earnings were up 2.4 per cent in the three months to June, down from the 2.5 per cent rate seen in May.

Pay, excluding volatile bonus payments, was also down in the period, with the growth rate easing to 2.7 per cent from 2.8 per cent in May.

City of London analysts had expected the rate to remain steady.

But the official unemployment rate fell from 4.2 per cent to 4 per cent – the lowest since February 1975.

The employment rate was close to a record high at 75.6 per cent.

The Bank of England raised interest rates earlier this month to 0.75 per cent, arguing that inflationary wage pressure was likely to grow over the coming year.

In its August Inflation Report, the Bank projected wage growth over 2018 to be 2.5 per cent, rising to 3.25 per cent over 2019.

The combination of subdued pay while the jobless rate continues to dip has left economists puzzled.

Many argue that pay growth will inevitably pick up soon as the labour market tightens further and employers have to pay more to attract workers. But others argue that something has changed in the structure of the labour market meaning that pay growth is unlikely to bounce back in the near future.

“While the unemployment rate continues to fall to near-historic lows, inactivity has ticked up and pay growth appears stubbornly stuck at levels far below those before the crisis,” said Stephen Clarke of the Resolution Foundation.

“The result is a labour market that appears fundamentally different to that which existed before the crisis; high employment coupled with weak pay growth could be the new normal.”

Inflation was 2.4 per cent in June, according to the ONS, meaning average UK real wage growth was 0.1 per cent, slipping slightly from the 0.2 per cent in May.

“The labour market isn’t tightening as rapidly as the sudden fall in the unemployment rate suggests”, said Samuel Tombs of Pantheon.

“Consumers’ confidence still is weak, suggesting that few people will take a risk and move from their current jobs to slightly higher paying positions. In addition, the recent weakness of business investment suggests that productivity growth likely won’t step up soon and support higher wages.”

Pay growth still subdued

The number of European Union nationals working in the year was 2.28 million, down 86,000 from the previous year.

This was the largest annual fall since comparable records began in 1997, with analysts saying this likely reflects the impact of Brexit.

The ONS also reported that the number of people on zero hours contracts was 780,000, down 104,000 from the previous year.

“Thanks to the Government’s policies and employers’ confidence in the British economy we have seen over 3.3 million more people employed in our country since 2010. Over 75 per cent of these people are employed in permanent jobs and full-time jobs and over 70 per cent in higher-level occupations which pay higher wages,” said the employment minister Alok Sharma.

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