[UK] Real wages show biggest drop in two decades

Official figures show the spending power of UK households having the most significant fall in at least 21 years as wage increases were eaten up by the fastest inflation in decades, Business Mirror reports.

When adjusted for prices, average earnings excluding bonuses were 3.4 per cent lower in April than a year earlier, the biggest drop since modern records began in 2001, the Office for National Statistics (ONS) said on June 14. The average decline in the three months until April was 2.2 per cent, the most since 2011.

The figures reveal that pay packets for most workers are failing to benefit from the tightest labour market in living memory. Earnings reportedly rose 4.1 per cent in April, around half the rate of inflation. Wages including bonuses grew at a faster pace but the rewards are uneven.

“This is really grim news on pay and is only likely to get worse,” Tony Wilson - director of the Institute of Employment Studies - said. “The picture is particularly bad for public sector workers, with real pay falling by nearly 6 per cent year on year.”

The situation is creating building pressure on Prime Minister Boris Johnson and a major challenge for Bank of England Governor Andrew Bailey as policymakers try to curb inflation without pushing the economy into recession. 

“Our jobs market remains robust with redundancies at an all-time low,” Chancellor of the Exchequer Rishi Sunak said. “Helping people into work is the best way to support families in the long term, and we are continuing to support people into new and better jobs.”

Bloomberg economist Ana Luis Andrade said, “There was something for both the doves and the hawks at the Bank of England in the latest UK labour market data. The hawks are likely to focus on strong payrolls and resilient underlying wage growth, while the doves will point to the uptick in unemployment and the real wage squeeze. Another 25-basis-point rate hike remains likely on Thursday; the combination of the mixed jobs data and weak gross domestic product growth in April means the central bank will probably shy away from a 50-bps move.”

Wages are rising too slowly to benefit workers but are growing too quickly for companies, many are raising prices to protect their profit margins. The BOE is reportedly expected to deliver an unprecedented fifth successive rate hike today to avert a wage-price spiral, and money markets imply many more are on the way.

The figures underscore the crisis the UK government faces in the public sector, where workers are becoming more confrontational in the face of collapsing real pay. For public sector workers, real pay is falling by nearly 6 per cent a year, the ONS figures showed. Railway workers have been striking and the government has yet to agree to public sector pay settlements for the health service.

Calls for further help from the government are mounting. Tax rises are adding to the squeeze and ministers admit that a £15 billion aid package announced last month will only go so far to help.

“Real wages are falling off a cliff as the cost of living soars,” Frances O’Grady - general secretary of the Trades Union Congress - said. “Millions of workers are being forced to choose between paying their bills or feeding their families. That isn’t right.”

The fall in real wages is based on CPIH inflation. When adjusted for CPI, wages dropped 4.5 per cent in April, the most on record, and by 3 per cent in the three months until April, the most since 2011.

There were some signs that the stasis in the labour market is beginning to ease as people rejoin the workforce. Unemployment rose unexpectedly in the three months until April to 3.8 per cent from 3.7 per cent the month before. That increase was driven by a drop in inactivity; the figure for people neither in work nor looking for a job.

Record vacancies

There were 41,000 more people without work but looking for a job, the first increase since the three months to December 2020. Employment rose as well; more people rejoined the labour market as inactivity fell. 

“The tick up in the unemployment rate and slowdown in total weekly earnings could be the first signs that the weakening economy is starting to feed through into a softer labour market,” Thomas Pugh - economist at the audit, tax and consulting firm RSM UK - said.

Businesses said the overall picture leaves it difficult for many to hire staff. Vacancies hit a new record of 1.3 million, meaning there are as many jobs available as there are people looking for work for the first time in history. Employers added 90,000 payrolls in May, more than forecast.

The lack of workers is causing problems for employers and creating widespread disruptions everywhere from airports to hospitality.

Jane Gratton - head of people policy at the British Chambers of Commerce - said, “An increasingly tight labour market means it’s much harder for employers to fill job vacancies, impacting on their ability to operate normally and retain skills in the business.” 

Kitty Ussher - chief economist at the Institute of Directors - said, “Today’s data shows firms are continuing to hire as fast as they can, with the number of people on payroll and the number of vacancies, both rising in the last month. This suggests order books remain strong and there is still plenty of demand in the economy.”

Source: Business Mirror

(Quotes via original reporting)

Official figures show the spending power of UK households having the most significant fall in at least 21 years as wage increases were eaten up by the fastest inflation in decades, Business Mirror reports.

When adjusted for prices, average earnings excluding bonuses were 3.4 per cent lower in April than a year earlier, the biggest drop since modern records began in 2001, the Office for National Statistics (ONS) said on June 14. The average decline in the three months until April was 2.2 per cent, the most since 2011.

The figures reveal that pay packets for most workers are failing to benefit from the tightest labour market in living memory. Earnings reportedly rose 4.1 per cent in April, around half the rate of inflation. Wages including bonuses grew at a faster pace but the rewards are uneven.

“This is really grim news on pay and is only likely to get worse,” Tony Wilson - director of the Institute of Employment Studies - said. “The picture is particularly bad for public sector workers, with real pay falling by nearly 6 per cent year on year.”

The situation is creating building pressure on Prime Minister Boris Johnson and a major challenge for Bank of England Governor Andrew Bailey as policymakers try to curb inflation without pushing the economy into recession. 

“Our jobs market remains robust with redundancies at an all-time low,” Chancellor of the Exchequer Rishi Sunak said. “Helping people into work is the best way to support families in the long term, and we are continuing to support people into new and better jobs.”

Bloomberg economist Ana Luis Andrade said, “There was something for both the doves and the hawks at the Bank of England in the latest UK labour market data. The hawks are likely to focus on strong payrolls and resilient underlying wage growth, while the doves will point to the uptick in unemployment and the real wage squeeze. Another 25-basis-point rate hike remains likely on Thursday; the combination of the mixed jobs data and weak gross domestic product growth in April means the central bank will probably shy away from a 50-bps move.”

Wages are rising too slowly to benefit workers but are growing too quickly for companies, many are raising prices to protect their profit margins. The BOE is reportedly expected to deliver an unprecedented fifth successive rate hike today to avert a wage-price spiral, and money markets imply many more are on the way.

The figures underscore the crisis the UK government faces in the public sector, where workers are becoming more confrontational in the face of collapsing real pay. For public sector workers, real pay is falling by nearly 6 per cent a year, the ONS figures showed. Railway workers have been striking and the government has yet to agree to public sector pay settlements for the health service.

Calls for further help from the government are mounting. Tax rises are adding to the squeeze and ministers admit that a £15 billion aid package announced last month will only go so far to help.

“Real wages are falling off a cliff as the cost of living soars,” Frances O’Grady - general secretary of the Trades Union Congress - said. “Millions of workers are being forced to choose between paying their bills or feeding their families. That isn’t right.”

The fall in real wages is based on CPIH inflation. When adjusted for CPI, wages dropped 4.5 per cent in April, the most on record, and by 3 per cent in the three months until April, the most since 2011.

There were some signs that the stasis in the labour market is beginning to ease as people rejoin the workforce. Unemployment rose unexpectedly in the three months until April to 3.8 per cent from 3.7 per cent the month before. That increase was driven by a drop in inactivity; the figure for people neither in work nor looking for a job.

Record vacancies

There were 41,000 more people without work but looking for a job, the first increase since the three months to December 2020. Employment rose as well; more people rejoined the labour market as inactivity fell. 

“The tick up in the unemployment rate and slowdown in total weekly earnings could be the first signs that the weakening economy is starting to feed through into a softer labour market,” Thomas Pugh - economist at the audit, tax and consulting firm RSM UK - said.

Businesses said the overall picture leaves it difficult for many to hire staff. Vacancies hit a new record of 1.3 million, meaning there are as many jobs available as there are people looking for work for the first time in history. Employers added 90,000 payrolls in May, more than forecast.

The lack of workers is causing problems for employers and creating widespread disruptions everywhere from airports to hospitality.

Jane Gratton - head of people policy at the British Chambers of Commerce - said, “An increasingly tight labour market means it’s much harder for employers to fill job vacancies, impacting on their ability to operate normally and retain skills in the business.” 

Kitty Ussher - chief economist at the Institute of Directors - said, “Today’s data shows firms are continuing to hire as fast as they can, with the number of people on payroll and the number of vacancies, both rising in the last month. This suggests order books remain strong and there is still plenty of demand in the economy.”

Source: Business Mirror

(Quotes via original reporting)