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UK employment surges but wages lag behind inflation UK employment surges – but wages lag behind inflation
(about 7 hours later)
Employment rose by a record 345,000 in the three months to April but Britain's workers were squeezed by a dramatic slowdown in pay growth, official figures showed. Unemployment fell to a five-year low in April but Britain's workers were squeezed by a dramatic slowdown in pay growth, according to official figures.
The number of people in work stood at 30.54 million, according to the Office for National Statistics (ONS), after a rise which was the highest since records began in 1971. A record rise in the number of people in work saw the jobless rate drop to 6.6% in the three months to April, reaching a level last seen in January 2009.
It means 780,000 jobs have been added in the past 12 months, the biggest annual rise since 1989. George Osborne hailed the progress as an important step towards the goal of full employment, while the chief secretary to the Treasury, Danny Alexander, said: "Britain is bouncing back."
But pay growth for the period slowed to 0.7%, a sharp fall on last month's figure of 1.7%, blunting hopes of a return to a period of real-terms pay growth. But the Labour party and trade unions pointed to a fall in workers' standard of living, as the figures also showed that pay growth fell to 0.7%, sharply down from 1.7% the month before and well below inflation, running at 1.8%.
The increase was well below the latest inflation rate of 1.8%, meaning the cost of living is still going up more quickly than wages. The Trades Union Congress general secretary, Frances O'Grady, said the government had prematurely declared an end to Britain's cost of living crisis. "It's great that more people are joining the workforce but hugely worrying that workers are still not getting the decent pay rises they need to get by.
This slowdown in total pay was largely accounted for by bonuses, which fell sharply compared with a period last year when in many were deferred to April after tax changes were introduced.
But regular pay growth also slowed, to 0.9% from 1.3%.
Unemployment fell by 161,000 to 2.16 million, with the jobless rate dropping to 6.6%.
Pay growth briefly edged higher than inflation in the spring, marking a break from years of falling real wages and providing a boost to the Conservatives as they seek to take the squeeze on household budgets off the pre-election agenda.
The TUC general secretary, Frances O'Grady, said the government had prematurely declared an end to Britain's cost of living crisis. "It's great that more people are joining the workforce but hugely worrying that workers are still not getting the decent pay rises they need to get by.
"The news that the economy is returning to its pre-crash size will be of cold comfort to the millions of workers who are still thousands of pounds a year worse off compared to five years ago."The news that the economy is returning to its pre-crash size will be of cold comfort to the millions of workers who are still thousands of pounds a year worse off compared to five years ago.
"With pay rises falling below one per cent, an early interest rise could cause major problems for millions of mortgage-holders." "With pay rises falling below one per cent, an early interest rise could cause major problems for millions of mortgage holders."
Jeremy Cook, chief economist at foreign exchange broker World First, said the wage figures showed there was still slack in the economy, despite the strength of increase in full-time jobs. Economists suggested the squeeze, which means pay packets are still falling in real terms, would prove a strong influence on the Bank of England and relieve pressure on the central bank to hike interest rates before next spring.
"Labour market strength is the driving force behind calls for interest rate increases from the Bank of England, sooner rather than later, and today's figures will add fuel to their fire," he said. Ross Walker, UK economist at Royal Bank of Scotland, said anaemic wage inflation trends would persuade the Bank of England to refrain from raising base rates before the end of the year.
"However, wage growth has fallen to 0.7%, versus the 1.2% expected, and this is still a major cause for concern. As a result I am still expecting the Bank of England to hold policy right through into the second quarter of 2015, mainly courtesy of the lack of real wage increases." John Philpott, director of The Jobs Economist consultancy, said the figures showed the long term unemployed were finding jobs and young people were getting back to work, but pay awards remained very low. "Britain's jobs market is booming everywhere apart from in most people's pay packets," he said.
Employment minister Esther McVey said businesses were feeling increasingly confident about creating jobs, cutting the number of young people out of work and reducing the numbers of long term unemployed. The fall in wage growth was blamed partly on government changes to the top rate of tax, which encouraged workers in line for large bonuses to take them in April last year. Bonus rises this year are therefore smaller by comparison, dragging down the median average total wage figure in the latest data.
"Helping young people to get a job is vital to securing our economic future, so it's welcome that youth unemployment has continued to fall – we'll continue to do all we can to inspire the next generation of employers and business leaders and help them to build their careers." There also remains uncertainty around how much of the growth seen in employment is in low-paid, insecure self-employment or part-time work.
Economists are divided over how soon consistent growth in real wages will return, particularly given the uncertainty around how much of the growth seen in employment is into low-paid, insecure self-employment or part-time work. They warn that for now the data will look gloomy. Employment rose by a record 345,000 over the three month period, pushing the number of people in work to 30.54 million, according to the Office for National Statistics (ONS), after a rise which was the highest since records began in 1971.
It means 780,000 jobs have been added in the past 12 months, the biggest annual rise since 1989. Almost half the jobs in that time can be attributed to self employment, though in the last three months full-time employment spurred growth .
The sectors creating the most jobs were agriculture, "real estate activities", the professional, scientific and technical sector and among "people employed by households".
Unemployment fell by 161,000 to 2.16 million, with the jobless rate dropping to 6.6%.
Rob Wood, chief UK economist at Berenberg bank, said pay would recover during the summer and reveal that job shortages in many sectors were forcing employers to raise wages. He predicted that the Bank of England's monetary policy committee would begin to raise rates in November.
The employment minister, Esther McVey said the figures showed businesses were feeling increasingly confident about creating jobs. She said: "Helping young people to get a job is vital to securing our economic future, so it's welcome that youth unemployment has continued to fall – we'll continue to do all we can to inspire the next generation of employers and business leaders and help them to build their careers."
The shadow work and pensions secretary, Rachel Reeves, said: "While this fall in overall unemployment is welcome, working people are over £1,600 a year worse off than when David Cameron came to office and pay has fallen behind inflation."