Economic Awakening or Stagnation? The Subtle Shift in UK Wage Growth and Employment

Wage growth in the UK experienced a cooling down over the summer months, as reflected in the latest data from the Office for National Statistics (ONS). The average wage growth declined to 4.7% for the three months ending August, down from 4.8% in July, amidst a slight rise in the national unemployment rate from 4.7% to 4.8%. Analysts suggest that this data indicates a stabilization of the jobs market following a turbulent year.

In parallel, job vacancies saw a decrease of 9,000 or 1.3% in the three months leading to September, marking the 39th consecutive decline in openings. Liz McKeown, the ONS’s director of economic statistics, noted signs of levelling off in both payroll numbers and vacancies after a prolonged period where hiring was weak. Intriguingly, the uptick in unemployment was most pronounced among younger individuals, while there was a quarterly decrease in economic inactivity due to students or retirees, countered by increases in those inactive for reasons such as long-term illness.

Danni Hewson, from AJ Bell, characterized these figures as revealing a soft labour market, particularly challenging for younger workers. She emphasized the implications of rising national insurance on employers, suggesting it has deterred hiring, particularly for part-time positions typically held by younger individuals entering the workforce for the first time.

The ONS revealed that annual wage growth for the public sector stands at 6%, while private sector growth is at 4.4%, the lowest in four years but still surpassing inflation rates. Sarah Coles from Hargreaves Lansdown noted that job hunting has become increasingly challenging, and wages are only modestly outpacing inflation. On the optimistic side, the employment rate has risen slightly over the past year, and the unemployment rate is relatively low by historical standards.

Nevertheless, Chris Hare, an economist at HSBC, described the labour market as experiencing soft demand which may contribute to a gradual easing of wage growth and cost pressures in the economy. Redundancies have exceeded figures from the previous year, with an increase to 3.8 per 1,000 employees during June to August.

The ONS revised wage growth figures slightly upward, now at 4.8%, a figure that is relevant for determining the state pension increase under the triple lock policy. With current inflation at 3.8%, real wage growth—factoring in cost of living adjustments—resulted in a minimal increase of 0.9% for workers. Criticism arose from the Liberal Democrats and the Resolution Foundation, highlighting that real wage increases are hardly keeping pace with inflation, with the latter commenting that weekly wages have scarcely risen by £1.50 since last September, a sum hardly adequate for basic living costs.