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Wage growth fails to keep up with inflation

  • Regular wage growth fell 1% in November
  • Unemployment at 4.1% is just 0.1% up on pre-pandemic levels
  • Pay rolled employees 409,000 higher than pre-pandemic
  • Economic inactivity rate 21.3% – 1% higher than pre pandemic levels

Danni Hewson, AJ Bell financial analyst, comments on the latest ONS jobs figures:

“Furlough was seen as the cotton wool that cushioned the UK’s jobs market from the ravages of Covid. The end of the scheme filled many with dread, a fear that those still being protected would find themselves out of work sending unemployment levels soaring. The reality is an intriguing picture with a record level of job vacancies, the number of employees more than 400,000 above that pre-pandemic and the redundancy rate at a record low. So far so good, but that’s not quite the full story and between the lines is a complex situation that does require careful consideration.

“Though the number of new job vacancies coming onto the market is slowing improving there is a yawning chasm between the number of workers employers have and the number they need in order to thrive or in some cases survive. The number of people not working, those intriguingly titled economically inactive, actually grew by 0.2% September to November when compared with the previous three months and is up on where we were before the pandemic took its toll. The increase could well be tied to the return to education for many young people looking to better their prospects and nervous of setting out on their career during such an unpredictable time. Nerves may also be playing a part in the number of over 60s choosing to stay in the workplace, some deciding to take early retirement, others perhaps waiting until the spring and summer to take on additional hours. 

“And those PAYE figures might not herald quite the good news they seem to bring. How many of the number used to be contractors and have shifted over for tax reasons? How many used to be self-employed with vibrant businesses that collapsed under Covid’s copious weight? But consider where the country could have been and consider that Omicron doesn’t seem to have made much of dent in the UK’s jobs story.

“But the real story this month can be found in wage growth. For the first time since July 2020 wages actually fell in November if you take into account blistering inflation figures. How does this shift impact the Bank of England’s thinking? Spiralling wage growth and a booming jobs market played into their decision making to increase rates in December. Do they look at today’s figures and decide their plans need to speed up in order to help average workers feeling the pain. Or do they consider that wage growth, even if you exclude inflation, is slowing and new vacancies are slowing too. Will these two things add their own drag on the inflation equation?”

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