British workers have just experienced their highest pay rises for two years. With inflation remaining at the Bank of England’s target, the average worker has now seen their real term pay increase between March and May this year by just over 2 per cent – a level not seen since 2022. However, in cash terms there are clear signs that the heat has firmly left the labour market with pay growth beginning to slow.
This is good news for the new government and rate setters at the Bank of England who will need to decide next month whether it’s time for the first interest rate cuts. Doubts about a cut were raised earlier this week with services inflation – a core part of Britain’s economy – stickier than expected. But today’s Labour Market data from the Office for National Statistics (ONS) paint a brighter picture for rate setters who give these figures great sway when making their decision.
More numbers from the release show the labour market is continuing to cool. Unemployment is up and job vacancies have now fallen for a full two years. There are 889,000 vacancies in the job market – down 30,000 over the last three months. That’s the 24th consecutive period that vacancies have fallen with fewer jobs advertised in 14 of 18 sectors monitored by the ONS. Over the past year vacancies are now down by 151,000, though they still remain 93,000 above pre-lockdown levels.
Unemployment, too, has gone in the direction rate setters want to see with the unemployment rate climbing from 4.2 to 4.4 per cent. Worryingly though those not in work or looking for it – the so-called economically inactive – has now increased by 390,000 over the last year and is over 800,000 higher than before lockdowns. This means that the equivalent of the entire populations of Bristol and Leicester have effectively abandoned work.
Much of this economic inactivity has been caused by those going on to long-term sick leave. This has largely been driven by an increase in poor mental health.
There was some better news on this front with the number of those out of work due to long-term sickness finally coming down. But it’s far too early to say if this is a trend – and at 2.8 million Britons, it’s still near enough a record high.
Most worryingly from this morning’s release though is the claimant count. This measure of those receiving benefits principally for joblessness saw a marked increase last month as the below graph shows. It stands at just under 1.7 million.
So it’s a mixed picture from this morning’s labour market figures: there is nothing that will alarm Bank of England rate setters, but it also paints a picture of a Britain that is not getting back to work in any great hurry. If Labour wants to set about reforming the country and public services without severe spending cuts or drastic pay rises, the only way to do so will be through sustained and meaningful economic growth. If nothing is done to tackle the seemingly never ending movement from a working life to one on benefits it’s pretty hard to see where that growth comes from.
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