Danny McCance 14 Aug 2019 12:01pm

UK wage growth accelerates in Q2

Between April and June, earnings shot up year-on-year as pay excluding bonuses increased by 1.8% – 1.9% including bonuses – the highest in more than a decade

According to the Office for National Statistics (ONS) this increase could be attributed to pay increases for some NHS staff affecting public sector pay growth, as well as the introduction of the new national living wage (4.9% higher than the 2018 rate).

John Hawksworth, chief economist at Big Four firm PwC, said that a “tight labour market is feeding through to higher earnings,” highlighting that annual growth in weekly pay of 3.9% in the second quarter was the highest since before the financial crash.

“This will continue to support consumer spending, which has been the main thing keeping the UK economy afloat over the past six months in the face of ongoing Brexit-related uncertainty and a slowing global economy,” he said.

The ONS reported a record 32.81 million people in work in the UK in Q2, 425,0000 more than the same period a year earlier.

At 76.1%, employment overall in the UK in the second quarter was its joint-highest rate since 1971.

This also included a record employment rate for women at 72.1%, the highest since record began in 1971. However the rate for men was unchanged since the same period last year and down 0.2% quarter-on-quarter.

Comparably, UK unemployment for the period was 0.1% lower than the year before when it was 4%, with an estimated 1.33 million people unemployed – 33,000 fewer than this time last year and 732,000 less than five years prior.

However at 3.9% this was still a 0.1% increase from the first quarter, when unemployment was at its lowest point since 1974.

Tej Parikh, chief economist at the Institute of Directors said that high rates of employment had proved “a lifeline for the economy in a difficult period,” and that solid income has kept consumer spending “fairly buoyant”.

However he was less optimistic regarding productivity, saying that “thin margins and low productivity may set a ceiling for pay growth,” despite competition having driven salaries up so far.

“Although vacancies remain high by historic standards, the number has been dropping since the start of the year,” Parikh said.

Hawksworth was similarly ominous, noting weak productivity growth as output per hour decreased by 0.6% in Q2 compared to the previous year.

“Weak productivity growth reflects subdued corporate investment growth over the past three years as businesses wait for greater clarity on Brexit,” he said.

In June, KPMG chief economist Yael Selfin warned of becoming lulled by a false sense of security provided by controlled low unemployment and inflation figures. She suggested that the productivity challenge was a “time bomb” that needed to be defused.