UK unemployment falls but wages struggle

by | Mar 15, 2022

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UK unemployment has fallen to pre-pandemic levels, but wages are struggling to keep up with soaring inflation, official data showed on Tuesday.
According to the Office for National Statistics, there was both an increase in employment and a decrease in unemployment in the three months to the end of January 2022.

The headline unemployment rate was 3.9%, 0.2 percentage points lower than the previous three-month period, returning it to pre-pandemic levels. It was also below consensus expectations for 4.0%.

The employment rate was 75.6%, 0.1 percentage points higher than the previous three-month period, but 1.0 percentage points lower than the three months to February 2020.


However, growth in regular pay – which excludes bonuses – was 3.8% in the three months to January 2022, or 4.8% including bonuses. Both rates are below inflation, which reached a 30-year high of 5.5% in the 12 months to January. The Bank of England expects inflation to continue rising, before peaking at over 7% in the spring.

Once adjusted for inflation, growth in total pay was 0.1% while regular pay – which strips out bonuses – was down 1.0% on the year. “Strong bonus payments over the past six months have kept recent real total pay growth positive,” the ONS noted.

Martin Beck, chief economic advisor to the EY Item Club, said: “The latest jobs numbers show warning signs in several respects. Job vacancies climbed further to a new record high of 1.3m.


“The Monetary Policy Committee’s worry will be that a tight jobs market risks inflationary second-round effects, as workers seek to offset cost of living pressures by asking for higher wages. This means it’s now even likelier that the committee will raise interest rates on Thursday. But the extent to which strong demand for workers is feeding into pay growth is still not clear.

“Moreover, a weaker economic outlook will affect the labour market. And going by the experience of the 2010s, adjusting to softer demand is likely to come through falling real pay more than job losses.”

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “Looking ahead, we continue to think that the labour market will not tighten materially further from here. Labour demand will be hit by the increase in employers’ National Insurance contributions in April. In addition, the workforce should start to grow at its typical pre-Covid rate soon, as immigration recovers and some people in stayed in education or left the labour market due to Covid return.


“The current low level of consumers’ confidence suggests that job-to-job moves, which help to drive up average wages, will fall back from last year’s very high rate. Accordingly we think that year-over-year growth in average weekly wages, excluding bonuses, will average about 4.5% this year, 1.8 percentage points above its 2015-to-2019 average, but low enough to stop the MPC hiking the bank rate once it has reached 1%.”

Kitty Ussher, chief economist at the Institute of Directors, said: “For those in work, pay rates just kept up with inflation, but only when bonuses were taken into account, suggesting that pay is more likely to be keeping up with inflation in the private sector compared to the public sector.

“Of greater concern is the rise in economic inactivity, particularly among the over 50s, which shows no sign of abating.”


The ONS said that the economic inactivity rate was 21.3%, 0.1 percentage points higher than the previous quarter and up 1.1% from before the pandemic.

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