Jessica Fino 13 Sep 2017 04:35pm

UK wages hit by rising inflation

UK wages have fallen in the three months to July driven by an increase in inflation rates

While there were 181,000 more people at work since the previous quarter, wages in real terms - adjusted for price inflation - fell by 0.4% compared with a year earlier.

The Office for National Statistics (ONS) said that, between May in July, there were 32.14 million people in work, with the employment rate at 75.3%.

The number of unemployed people fell to 1.46 million, translating into an unemployment rate of 4.3%. This was down from 4.9% compared to a year earlier and the lowest rate since 1975.

Despite the average weekly earnings in real terms declining 0.4%, in nominal terms - not adjusted for price inflation - earnings increased by 2.1% compared with a year earlier.

Matt Hughes, senior ONS statistician said, “Another record high employment rate and a record low inactivity rate suggest the labour market continues to be strong. In particular, the number of people aged 16 to 64 not in the labour force because they are looking after family or home is the lowest since records began, at less than 2.1 million.”

John Hawksworth, chief economist at PwC, said that, while the UK economy remains “a great job creating machine” with the employment rate rising to 75.3%, real wages continue to be squeezed, “which corresponds to relatively weak productivity growth as strong jobs growth contrasts with modest GDP growth so far this year”.

He added, “This could start to change as the public pay cap is gradually eased for some workers and as labour shortages do eventually cause private sector wages to edge up.

“But this seems unlikely to push real wage growth back into positive territory until later next year at the earliest when the effects of the weak pound on inflation may begin to fade."

Matthew Percival, CBI Head of Employment, pointed out that businesses need the confidence to invest to help deliver a sustainable improvement in productivity and wages.

He warned, “It’s therefore absolutely vital that substantive progress is achieved during the Brexit negotiations and comprehensive, time-limited transitional arrangements are agreed with all urgency.”

Suren Thiru, head of economics at the British Chambers of Commerce (BCC), said, “With pay growth unchanged, inflation continues to comfortably outpace earnings growth, which is putting the brakes on consumer spending, a major determinant of UK economic growth.

“It is concerning that the number of vacancies remains well above the historical average - a further indication of the continued skills shortage faced by business, which is weighing on productivity and growth prospects.”

The BCC warned that in the Autumn Budget – the date of which was announced yesterday – the government should find ways to support firms looking to recruit and grow their business, including tackling the high up-front taxes and costs of doing business in the UK.

“As the Brexit process unfolds, a key focus must be on delivering a post Brexit immigration system that reflects the needs of the UK economy,” Suren added.

Meanwhile, Frances O’Grady, TUC general secretary, said, “The squeeze on living standards is not letting up. This is the fifth month in a row that pay has failed to keep up with inflation.
“Ministers need to stop twiddling their thumbs and get wages rising across the economy. Just one in nine UK workers had a real-terms pay rise last year.”

On Tuesday, the ONS said that the inflation rate rose to 2.9%, the highest in five years, led by a fall in the value of the pound since the Brexit vote and by the increase in the price of oil.