Wage growth in the British job market has experienced a slowdown, yet it continues to outpace the increase in prices, according to official figures released by the Office for National Statistics (ONS).
In the last three months of 2023, pay, excluding bonuses, grew by 6.2 percent compared to the same period a year earlier.
When accounting for price rises, pay still saw a positive trend, increasing by 1.9 percent.
However, concerns arise over the reliability of job market data, as the ONS is currently updating its methods for gathering employment information, with full implementation expected by September.
The Governor of the Bank of England, Andrew Bailey, has highlighted the challenges this poses for policymakers, particularly in determining the course of interest rates.
Rising interest rates
The Bank of England has been steadily raising interest rates over the past couple of years to combat inflation, with the latest increase occurring in August 2023. Higher interest rates aim to cool inflation by making borrowing more expensive. This has impacted both business and household finances, leading to a slowdown in pay growth from the peak observed last summer and a decline in job vacancies.
The Monetary Policy Committee, responsible for setting interest rates, closely monitors wage growth data. Despite a decrease from 6.6 percent to 6.2 percent, slightly higher than economists predicted, the committee awaits further evidence of a challenging job market before considering rate cuts that might need reversal later.
The latest figures reveal a decline in job vacancies for the 19th consecutive time, with a decrease of 26,000 to 932,000 in the three months to January. While signs of a slowing downward trend in job vacancies are present, Liz McKeown, Director of Economic Statistics at the ONS, emphasised the need for cautious observation.
Unemployment figures indicate resilience in the job market, with the unemployment rate in the UK dropping to 3.8 percent in the final three months of 2023, down from 3.9 percent in the preceding three months. Chancellor Jeremy Hunt expressed satisfaction with the rise in real wages and low unemployment but emphasised the need to continue efforts to grow the economy.
What about long-term sickness?
Liz McKeown highlighted a concerning trend, as the data suggests historically high numbers of people claiming long-term sickness and an inability to work or seek new roles. Tony Wilson, Director of the Institute for Employment Studies, stressed the importance of addressing this rise in inactivity to prevent it from hindering economic growth and widening social and economic inequalities.
Labour’s Shadow Work and Pensions Secretary, Liz Kendall MP, emphasised the need to address the higher number of individuals out of work due to long-term illness, which she claims is costing taxpayers billions in rising benefit bills. She outlined Labour’s approach, focusing on tackling the root causes of worklessness through NHS reform and social security changes.
Sarah Coles, Head of Personal Finance at Hargreaves Lansdown, pointed out signs of weakness “creeping into” the job market, highlighting a recent rise in redundancies. As the UK heads towards a General Election later this year, economic performance remains a key focus, with predictions of potential income tax cuts by Chancellor Rishi Sunak to gain voter favour.
Amelia Brand is the Editor for HRreview, and host of the HR in Review podcast series. With a Master’s degree in Legal and Political Theory, her particular interests within HR include employment law, DE&I, and wellbeing within the workplace. Prior to working with HRreview, Amelia was Sub-Editor of a magazine, and Editor of the Environmental Justice Project at the University College London, writing and overseeing articles into UCL’s weekly newsletter. Her previous academic work has focused on philosophy, politics and law, with a special focus on how artificial intelligence will feature in the future.