UK real wages no longer falling, but jobless rate rises to near two-year high
By Holly Williams, PA Business Editor
The pace of wage growth in the UK has caught up with price hikes for the first time in nearly two years despite rising unemployment amid a cooling jobs market, according to official figures.
The Office for National Statistics (ONS) said average regular weekly earnings growth remained at 7.8% in the three months to July, the highest since comparable records began in 2001.
Pay growth matched Consumer Prices Index (CPI) inflation over the same period, meaning real wages did not fall for the first time since October 2021.
Total pay including bonuses jumped by 8.5%, meaning that it outstripped inflation for the first time since March 2022, up 0.6% with CPI taken into account.
It will come as a relief to cash-strapped households who have struggled amid a lengthy cost-of-living crisis, with regular wages having trailed behind inflation for nearly two years.
But it will also likely reinforce concerns among Bank of England policymakers over stubborn inflation and increase pressure to raise interest rates yet again as they battle to bring inflation back to the 2% target.
Martin Beck, chief economic adviser to the EY Item Club, said the Bank is facing a “quandary”, with wage growth remaining at a record high while the jobs market is “clearly on the turn” after 14 rate rises in a row.
The latest figures showed that the rate of unemployment lifted to its highest level since July to September 2021, at 4.3% in the three months to July, up from 4.2% in the previous three months, as the number of unemployed rose 159,000 quarter-on-quarter to 1.5 million.
This came as employment plunged by 207,000 quarter-on-quarter to 32.9 million in the three months to July – the steepest drop since the autumn of 2020.
The latest data also revealed that the number of vacancies fell below the million mark for the first time since the summer of 2021, down 64,000 in the three months to August to 989,000.
And more timely figures show the number of workers on UK payrolls edged 1,000 lower to 30.1 million last month.
The Trades Union Congress (TUC) warned the UK economy was in “the danger zone”.
TUC general secretary Paul Nowak said the Government “is in denial”.
Chancellor Jeremy Hunt insisted it was “heartening to see the number of employees on payroll is still close to record highs and that our unemployment rate remains below many of our international peers”.
“Wage growth remains high, partly reflecting one-off payments to public sector workers, but for real wages to grow sustainably we must stick to our plan to halve inflation,” he added.
Mr Beck said that, given the ongoing strength in pay growth, “the latest numbers don’t change the likelihood of the Monetary Policy Committee (MPC) opting for another rate rise next week”, with many economists pencilling in a rise from 5.25% to 5.5% at its September 21 meeting.
However, Mr Beck added that “growing evidence of the adverse effect of policy tightening on the labour market is one factor which means interest rates should soon peak”.
The ONS figures showed that unemployment was driven higher by falls among men and the self-employed, while the rate of economic inactivity also rose again, up 0.1% percentage points at 21.1% in the three months to July.
Darren Morgan, ONS director of economic statistics, said: “The proportion of people neither working nor looking for a job is slightly up, with more students, as well as the long-term sick reaching yet another record.”
The latest wage growth figures are also particularly important, as the total earnings rise is used to determine the “triple lock” guarantee for the state pension – which increases every April in line with the highest of average earnings growth in the year from May to July of the previous year, CPI inflation in September of the previous year, or 2.5%.
This means that state earnings are set to leap by 8.5% next April, although the ONS stressed the wage growth figures are subject to possible future revisions.
The ONS added that there were 281,000 working days lost because of labour disputes in July, with the majority in the education and health and social work sectors.