UK pay growth slowdown adds to inflation squeeze on households

Employment increased in January as younger employees returned to workplace, says ONS

UK wage growth slowed in the three months to January, despite inflation staying stubbornly high, prolonging the cost of living crisis affecting millions of households.

Wages growth fell to 5.7% from a revised 6% in December to leave the average pay rise 3.2% below the rate of inflation, the Office for National Statistics (ONS) said.

Easing pressure on the Bank of England to raise interest rates, pay growth in the private sector fell for the first time in a year from 7.3% to 7%.

Central bank officials have warned they may need to increase interest rates if wages continue to rise, fearing that high incomes will add to the pressure on shop prices.

Public sector wages continued to close the gap with private sector workers but the increase of 4.8% for workers employed by the state still fell short of the average of 7% paid to private sector workers.

Pay in finance and business services sector had the largest growth rate at 7.7%, followed by the construction sector at 5.8%.

There was a fillip for the chancellor before the budget on Wednesday from figures showing the proportion of working age people with a job edged higher to 75.7% in the three months to January 2023, driven by young people taking part-time jobs and a rise in the number of self-employed.

A more recent estimate of PAYE workers by HMRC found the number of payrolled employees jumped 98,000 to 30 million.

The ONS said the workers categorised as neither working nor looking for a job fell overall, “driven by a drop in young people”.

However, the ONS reported that employers were nervous about the outlook for the economy and reduced the number of jobs on offer by 51,000, taking the number of vacancies down to 1.124m.

The modest rise in the number of part-time workers is also expected to leave large skills gaps in several industries struggling to fill vacancies.

Economists said the fall in wages was a further indication that employers were reluctant to increase employment costs going into a difficult period for the economy.

A measure of private sector wages growth that looks at the month of January, showed an even sharper decline, with the increase adjusting downwards to just 1.2%, from an average of 6.9% in the previous 12 months.

Samuel Tombs, the chief economist of Pantheon Macroeconomics, said the Bank of England was likely to set aside the rise in the employment rate and stubbornly low unemployment to focus on the drop in wages growth as a significant weakening of the labour market.

There were 2.5 million people off work due to long-term sickness in the three months to January – up 2.6% quarter-on-quarter and 7.9% year-on-year and the highest since tracking of this statistic began in 1993, according to ONS.

Tony Wilson, the director at the Institute for Employment Studies, said the figures showed there were still almost half a million fewer people in work than before the Covid-19 pandemic, driven by more people out of work due to long-term health conditions and more older people out of work.


Phillip Inman

The GuardianTramp

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