London (Parliament Politics Magazine) – UK wage growth stalled in May to the lowest level in two years amid a cooling jobs market, highlighting the challenge for the Bank of England as policymakers determine whether to cut interest rates.
Is UK Wage Growth at Its Lowest in Two Years?
Statistics from the Office for National Statistics (ONS) offer annual pay growth reduced from 5.9% in the three months to April to 5.7% in the three months to May, reaching City economists’ predictions. Unemployment was untouched from 4.4% in April, while the number of job vacancies dropped by 30,000 led by dwindling need in retail and hospitality amid a persistent slowdown in hiring across the economy.
Are Real Wage Increases Keeping Pace with Inflation?
After a sharp decline in headline inflation over recent months, real wage increases taking into account the rising cost of living have been supported. Total real income, including bonuses, increased by 3% on the year in the three months to May. Growth was last increased in the three months to August 2021, when it was 4.5%.
How Has Economic Inactivity Impacted UK Unemployment?
Liz McKeown, the ONS director of economic statistics, stated: “We continue to witness overall some symptoms of a cooling in the labour market, with the increase in the number of employees on the payroll cutting over the medium term and unemployment gradually growing.
“Earnings increase in cash terms, while remaining relatively robust, is showing signs of stalling again. However, with inflation falling, in natural terms, it is at its highest rate in over two and a half years.”
In a movement of the cooling labour market, the latest snapshot revealed there were now more than 500,000 more people out of work than this time last year, caused by a peak in economic inactivity – when working-age grown-ups are neither in a job nor looking for one. Although financial inactivity has come down in recent months, it remains near a record high at almost 9.4 million, with almost a third outside the workforce due to near-record levels of long-term illness.
What Challenges Does Liz Kendall Highlight for UK Employment?
Liz Kendall, the new work and pensions secretary, stated the UK was standing alone as the only G7 country where the occupation rate was not back to pre-pandemic levels. “This is a truly dire legacy which the government is determined to tackle,” she stated. “Behind these statistics are real people, who have for too long been neglected and denied the support they need to get into employment and get on at work. It’s time for change.”
Financial markets anticipate Bank policymakers will hold off from slashing interest rates from the current level of 5.25% at their conference on 1 August, instead waiting until they are persuaded that inflation will remain close to the government’s 2% target before decreasing the cost of borrowing. Threadneedle Street has previously cautioned that inflation is likely to increase above 2% this year amid resilient earnings growth and price gains in the service sector of the economy.