Living standards still face squeeze as earnings have failed to keep pace with rising inflation

This article is more than 3 years old

This article is more than 3 years old

UK pay growth has started to edge up amid signs that the lowest level of unemployment since the mid 1970s may be increasing workers’ bargaining power.

Office for National Statistics figures showed that earnings growth in the three months to June was 2.1% higher than in the same period in 2016, and up from 2% in the three months to May and a recent low of 1.8% in April.

The ONS said unemployment in the quarter ending in June was down 57,000 on the previous three months at 1,484,000. The jobless rate fell to a 42-year low of 4.4%. Employment was up by 125,000 at 32.1 million in the three months to June, the highest rate (75.1%) since modern records began in 1971.

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Its breakdown of the 338,000 increase in employment over the past year found that full-time jobs were up by 380,000, while part-time posts fell by 43,000. Male employment was at a level not seen since 1991, while female employment was at the highest rate since 1971.

The ability of the economy to generate new jobs contradicts warnings by the Treasury before last year’s EU referendum that a vote to leave would lead to a sharp rise in the jobless total. The then chancellor George Osborne predicted that unemployment would rise by 500,000 within two years of a vote to leave. The first year following the Brexit vote saw unemployment fall by 157,000.

But despite the additional jobs and the acceleration in earnings growth, living standards remain under pressure because pay has failed to keep pace with inflation, which stood at 2.6% in June.

The increase from 0.9% a year earlier has largely been the result of dearer import prices caused by the drop in the value of the pound since the Brexit vote.

Ruth Gregory, the UK economist at Capital Economics, said: “The latest labour market figures provided some signs that the tightening in the labour market may be leading to a recovery in wage growth at long last.”

The increase in employment had beaten consensus expectations of a 97,000 rise, she added.

The City responded to the unemployment and earnings data by pushing up the value of the pound against the dollar by half a cent on foreign exchanges.

A tighter labour market is seen as strengthening the hand of the hawks on the Bank of England’s monetary policy committee, who are pressing for an increase in interest rates.

The ONS reported that the availability of jobs in the UK continues to attract workers from overseas, but found that the rate of increase had slowed over the past year.

Between April and June 2016, and the same three months of 2017, the number of non-UK nationals from the EU working in Britain rose by 126,000 to 2.37 million. In the previous year, there had been an increase of 242,000. The number of workers from the rest of the world fell by 18,000 between April and June.

While the private sector continues to take on more staff, ONS figures showed state employment had fallen to its lowest level since 1999. The number of public sector jobs in the three months to March stood at 5.42 million, down 7,000 over the quarter and 20,000 over the year.

Matt Hughes, a senior labour market statistician at the ONS, said: “The employment picture remains strong, with a new record high employment rate and another fall in the unemployment rate. Despite the strong jobs picture, however, real earnings continue to decline.

“The number of workers born elsewhere in the EU continues to increase, but the annual rate of change has slowed markedly.

“New figures on the number of workers who say they are on zero-hours contracts show a small drop on last year.”



Damian Hinds, the employment minister, said the 338,000 increase in employment in the year to June had been primarily driven by full-time, permanent jobs. “More than 3 million more people are in work now than in 2010, with seven in 10 of these roles being in higher-skilled work,” he said.