Earlier in 2015 an unemployment rise was accompanied by an acceleration in wage growth. Now the opposite is happening

Employment rising. Earnings growth down. Living standards up. Interest rates going nowhere fast. Those were the four big themes of the latest snapshot of the UK labour market.

Let’s start with jobs. After a lull in the spring and early summer, the number of people in work is going up and the number unemployed is coming down. The government boast that employment is at a record level is a bit meaningless in the light of a rising population, but more jobs are being created, the bulk of them full-time posts. Also, the unemployment rate dipped to 5.4%.

All of which makes it curious that the pace of pay growth eased back. Earlier in the year a rise in unemployment was accompanied by an acceleration in earnings growth. Now the opposite is happening.

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The latest summary of economic conditions put together by the Bank of England’s regional agents provides some clue as to what is going on. The agents say that there is some limited evidence that the drop in unemployment is making it harder for companies to find the workers they want, but that low inflation had reduced the pressure to offer high pay in order to attract staff.

This is reflected in the official data from the Office for National Statistics. Yes, there has been a pick up in the rate of earnings growth over the past year, but it has been relatively modest. In the three months to January 2015, average earnings for the whole economy were rising at an annual rate of 2%.

The latest figures for the three months to August show them growing at 3%, slightly down on this year’s peak of 3.3% in the three months to May. In August alone, earnings were up 3.1% on a year earlier, compared with a 3.6% increase in July.

Earnings are growing at a time when inflation is weak. The figures cover the period up until August, a month in which the rise in the cost of living as measured by the consumer prices index stood at zero. Earnings growth of 3% coupled with no inflation means a 3% increase in living standards, which may explain why the latest surveys show consumer spending is strong. With households spending less on petrol and domestic heating bills, retailers will be looking forward to a bumper Christmas.

All the more so because the lack of any real upward pressure on inflation means that an interest rate increase from the Bank of England will not be on the agenda until the credit card bills for the now traditional December spending binge start to roll in.