Unemployment in the UK has fallen to its lowest level in almost 50 years, but workers are still falling sharply in real incomes as wage growth lags behind inflation.
Figures from the Office for National Statistics (ONS) show that the country’s unemployment rate fell to 3.7 percent from 3.8 percent in the three months to March, the lowest since 1974 and better than economists expected in the first quarter.
In another sign that businesses are fighting for employment, ONS says that for the first time since the record began, there are more open job vacancies in the economy than there are unemployed people. The number of vacancies rose to a new record of 1.29 million in April.
Despite a tight labor market, most workers are still failing to ensure a wage increase in line with inflation, which hit 7 percent in April and will double-digit by the end of this year. ONS said a measure of weekly earnings growth, which excludes bonuses, rose 4.2 percent in the first quarter. In fact, adjusting for inflation has resulted in a more than 1.2 percent drop in revenue, the worst fall since 2013.
There is evidence that companies across various sectors are offering bonuses as a way to attract new talent. ONS’s weekly revenue growth measure, including bonuses, hit 7 percent, accounting for the lucrative annual payments in the financial sector.
“Continued strong bonuses in some sectors, such as construction and financing in particular, mean that total wages are rising faster than average prices, but underlying regular earnings are now declining sharply in real terms,” said Darren Morgan, director of statistics at ONS.
Economists say the decline in unemployment could be attributed to a further decline in the total size of the workforce after the epidemic. ONS estimates that the size of the UK workforce is about 1 million smaller than if the pre-epidemic trend continued.
Wage growth has become a closely watched metric amid fears that rapidly rising inflation will meet workers’ wage demand and embed high prices in the economy. Martin Beck, chief economic adviser at the EY Item Club, says so far, however, there are some signs that higher wages are contributing to fugitive inflation.
“There is still very little evidence to suggest a wage-price spiral development,” Beck said. “As labor demand cools with a weak economy, the risk of rising price pressures will continue to decrease as a result of the ‘second round’ effect on inflation.”
The ONS said total employment remained below its pre-coveted peak as more workers left the workforce after the epidemic. The employment rate rose 0.1 percentage points to 75.7 percent.
The Bank of England expects higher interest rates to reduce the unemployment rate further in the coming years before it rises above the current low of 5 per cent, which will help reduce demand in the economy.
Unemployment fell in the first quarter, despite slowing economic growth in the UK earlier this year and a 0.1 per cent contraction in March.
Paul Dales, chief UK economist at Capital Economics, said that despite the uncertain economic outlook, the job market would continue to grow and wage pressures would increase. “We think the Bank of England needs to raise interest rates from 1 per cent to 3 per cent to control this source of domestic inflation,” he said.