Britain has all the hallmarks of a full-employment economy. The employment rate is at a record level, unemployment is at its lowest in more than a decade, and the percentage of women working is at its highest since modern records began.

The one thing missing from this picture is an increase in wages. Full-employment economies are normally good for workers because they take advantage of labour shortages to strike better deals with employers.

Yet this is not happening in the UK. The latest figures from the Office for National Statistics show that employment was up in the final three months of 2016 but the rate of growth in earnings slipped back. The fact that the slowdown occurred while rising inflation was eroding the purchasing power of consumers makes the disparity between jobs and wages even more curious.

The obvious conclusion is that Britain is not actually operating at full employment because if it were, earnings would be rising, not falling. Although the unemployment rate is 4.8%, it can come down further without wage inflation starting to rise.

As the ONS has pointed out, the proportion of part-time workers who cannot find full-time jobs is markedly above the long-term average. The ONS thinks that this fact, along with the increase in the number of part-timers working in the economy, suggests there is a pool of labour that can be tapped by employers if they are looking to raise output.

There has also been a shift towards self-employment in the UK, a rise of almost 300,000 in the past two years. It is a reasonable assumption that many of the 4.8 million people working for themselves are not doing so voluntarily but because they cannot find better paid full-time work.

Employers have also been able to find workers from overseas. Between the final three months of 2015 and the final three months of 2016, the number of people employed rose by just over 300,000. Of those, 70,000 were UK nationals and 230,000 were non-UK nationals. The increase in the supply of labour has helped to keep the lid on wage increases.

Finally, demand for labour has been tapering off. To be sure, the number of people working was up by 37,000 in the final three months of 2016, but this followed increases of 172,000 in the second quarter and 49,000 in the third. The Bank of England’s regional agents have detected evidence of a lower rate of hiring, and this might be already having an impact on wages.

Whatever the explanation, the evidence suggests that there is still spare capacity in the labour market. There is no immediate prospect of the depreciation of sterling triggering the price-wage spiral feared by the Bank of England, which is why interest rates will remain at their current rock-bottom levels.

Cheap money, an improving global economy and the impact of the weaker pound on exports will prevent unemployment from rising very much from its current low level. That’s the good news. The bad news is that it won’t be too long before prices start rising more quickly than wages. Get ready for real incomes to fall and living standards to be hit.

Fatty fivers and the Indian Mutiny

Not since the Indian Mutiny of 1857 has there been as much fuss about tallow. Back then, Hindu sepoys rebelled because their rifle cartridges were greased with cow fat. This time, the Bank of England has copped it from vegans and religious groups because the new polymer £5 notes contain traces of animal-derived products.

With hindsight, Threadneedle Street probably regrets that it did not more carefully check what was used to make the fatty fivers. But more than half the £5 notes in circulation are now made of polymer, and production is well under way for the next generation of £10 notes in preparation for them to be issued in September.

The Bank has looked at whether to recall and destroy all the polymer notes, but decided not to do so. That’s the correct decision, because the costs of making the change – £70m for pulping the notes, higher business costs, potential environmental damage from using palm or coconut oil as an alternative to tallow – are greater than the benefits.

Public funds are not unlimited, and it would be much better value for money to get diesel cars rather than £5 notes out of circulation. The Society of Motor Manufacturers and Traders has reported that sales of secondhand diesel cars rose by 11% last year, more than twice as fast as purchases of petrol models.

The reason for that is simple: Gordon Brown as chancellor provided tax incentives for buying diesel cars as a way of tackling global warming before the health hazards became clear. Philip Hammond needs to put that right in next month’s budget through a generous scrappage scheme coupled with higher vehicle excise duty on diesel vehicles. Fatty fivers don’t actually kill people. Diesel cars do.