A Cooling Labor Market
According to Darren Morgan, the Director of Economic Statistics at the ONS, although earnings continue to exhibit robust growth in cash terms, there are indications of overall easing wage pressure. The British economy currently faces stagnation, with several analysts suggesting the possibility of a slight recession in the coming months, a fate shared by some European nations.
However, the shortage of workers due to the contraction of the British workforce during the pandemic, combined with post-Brexit labor restrictions for European Union workers, has left many employers struggling to fill vacancies. Martin Beck, Chief Economic Advisor to forecasters EY ITEM Club, views the pay data as a positive sign for the Monetary Policy Committee. Despite this, he believes that the committee will continue to emphasize a “high-for-longer” message since annual pay growth remains double the pace necessary to meet the Bank of England’s 2% inflation target.
When accounting for bonuses, which tend to be volatile, pay growth also slowed from 8.0% to 7.2% in the three months to September. The Bank of England expresses concerns that pay growth, particularly in the private sector, remains too strong to bring inflation down to its targeted 2%, even as the broader economy stagnates.
Inflation figures in the UK have decreased since October last year when they reached 11.1%. However, the most recent reading of 4.6% still exceeds the BoE’s 2% target, causing the central bank to remain vigilant against inflationary pressures within the economy.
Vacancies experienced a decline for the 17th consecutive month, dropping nearly 30% from their peak in the three months leading up to November. Nevertheless, vacancies remain higher than they were before the pandemic. To combat the shortage, Finance Minister Jeremy Hunt recently introduced modifications to the welfare system with the aim of boosting employment rates.
While Tuesday’s data reveals a steady unemployment rate of 4.2% in the three months to September, employment increased by 50,000 people. It is worth noting that the ONS has adjusted its method for measuring the jobs market, casting some doubt on the reliability of these figures.
Despite the deceleration in headline pay growth, workers saw the largest increase in their real incomes, adjusted for consumer price inflation, since the three months leading up to September 2021, with a rise of 1.2% on an annual basis.