Inflation takes a record-breaking bite out of wages – industry reaction to ONS Job figures

by | Aug 16, 2022

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  • Regular pay fell by the sharpest rate on record – down 3%.
  • Number of vacancies fell for the first time since mid-2020.
  • Number of pay rolled workers up by 73,000 between June and July.

Industry experts react to the latest ONS job figures as inflation takes a record-breaking bite out of wages.

Danni Hewson, AJ Bell financial analyst, comments on the latest ONS jobs figures: “Another month, another chance for inflation to nibble away at the nation’s pay-packets. Whilst wages are rising, they’re no match for red hot prices and in real terms people’s regular pay fell by 3% in the three months between April and June.

“Once again people working in the private sector fared far better than those employed by the public sector and its clear employers are having to dig a little deeper if they want to recruit and retain people in jobs that have become less desirable since the pandemic.  Warehousing, retail, hotels and restaurants, places where hours are often unsociable and there’s no chance to offer the perk of home working in lieu of wage hikes have seen the largest pay rises and it’s no coincidence that these areas also have the highest vacancy rates.

“Bonuses are also coming into play and these rewards that help negate inflation for some workers and help others navigate the current cost of living crisis are likely to persist and increase over the rest of the year.

“But there are signs the labour market is loosening up. Vacancies actually fell over the last quarter for the first time since mid-2020 when the first lockdown ended, and life surged back to some kind of normal. Where last month there were more job openings than unemployed people waiting to take them, the number has now equalized.

“Rising prices are making some businesses think hard about their survival at a time when the consumer has already cut back and is likely to keep on doing so. Cost-cutting usually involves a long look at headcount, a quick and effective way of bolstering margins but recent events have reminded us it can also be hard to ramp back up when the economic climate turns fair once again.

“There’s been little change in the employment rate which is still below pre-pandemic levels for a whole host of reasons, reasons which may be tested over the coming months.  There are slight changes in the make-up of that pesky group, the economically inactive, signs that both older and particularly younger workers are re-entering the workforce, though the number of people dealing with long term sickness has risen. 

“The labour market has changed since the pandemic and normal service is unlikely to be resumed, at least in the short-term, which is creating challenges for employers. Wage negotiations have been tense, disputes common and with inflation only set to climb higher as the nights draw in, a summer of discontent could well continue into autumn and beyond. Wage hikes will only add to the inflation story, keep high prices sticky for longer, but without those hikes many employees simply won’t cope.  It’s a dilemma being wrestled with at every level, in every home, boardroom and ministerial office.”

Kate Smith, Head of Pensions at Aegon comments: “On the eve of inflation predicted to reach double figures, this morning’s ONS figures paint a gloomy picture with a record fall in real regular pay as wages simply fail to keep pace with soaring inflation, with the gap now at 4.7%.

“In the middle of an ever tightening cost of living of crisis, this means a pay cut for millions of workers as households are forced to walk a financial tightrope with everyday essentials such as food and fuel rising exponentially in cost. This will undoubtedly force many working-age individuals into a corner as they are forced to make difficult day-to-day decisions about how to stretch their finances to cover everyday expenses.”

“Aegon UK research carried out earlier this month shows an emerging split between different generations, with 32% of 18-34 year olds saying that they are worried about their short-term finances compared to 19% of over 55 year olds. We are beginning to see the pressure cooker of intergenerational tension bubble over as pensioners are set to benefit from a double digit increase, and potentially the highest ever, state pension increase thanks to the triple lock.

“With inflation persistently outstripping earnings, this looks set to be the deciding factor for determining the value of the state pension, and a major income boost for pensioners. In contrast the majority of workers have failed to see an inflationary matching pay rise this year, with many receiving no pay increases at all and with many forced to adopt a short-term approach to their finances.”

Paul Craig, portfolio manager at Quilter Investors: “Figures released this morning show a labour market that is ignoring signs of an impending recession as unemployment rates remained relatively unchanged over the month. The employment rate remains below pre-pandemic levels, so while some economic activity is beginning to show signs of weakness, there is still room for recovery in other areas. We just have to look at the number of job vacancies out there with 1.274 million workers needing found. Clearly that isn’t going to happen quickly, but the Bank of England will believe it is on the right path with 50bps interest rate rises while the labour market remains this tight.

 “Employees did see their pay, excluding bonuses, rise by 4.7% from April to June, but this will be little comfort given where inflation is. Even with a rise this high, they have experienced real terms cut of 3%. While Andrew Bailey won’t want to see pay rising too quickly, we are headed for a difficult winter where some parts of the population will be struggling with energy bills and the cost of food. If inflation continues on its trajectory to the forecasted 13% this is only going to exacerbate the situation further. The pay demands we have seen in the public sector of late are only going to get louder.

 “All in all, it is a clouded picture for policy makers and central bankers. Economic activity in the UK is grinding to a halt despite the jobs market holding up. Whether or not these workers will be in a position to handle further rate rises remains to be seen, but with pay lagging as inflation soars, they might have no choice but to deal with it. This will ultimately put further pressure on the next incumbent of No.10 to provide support at a time when earnings are failing to keep up with the cost of living.”

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