Employment back at record high but rising prices are set to eat into pay packets this year

The UK jobs market is in rude health but rising inflation is set to eat into pay packets this year, the Resolution Foundation said today (Wednesday) in response to the latest labour market figures.

The headline employment rate returned to its record high of 74.5 per cent in the three months to November, underpinned by a fall in unemployment matched by a small increase in economic inactivity.

The big picture remains a generally flat labour market picture over the past six months following several years of strong jobs growth. Real pay remained at 1.7 per cent as nominal earnings edged up slightly.

The Foundation notes that nominal pay will need to rise much faster to avoid sharp increases in inflation squeezing pay growth this year. Resolution’s latest pay projection following today’s figures shows that with inflation rising sharply in December (to 1.6 per cent) – and expected to continue rising in 2017 – real pay growth is set to fall to around 1.4 per cent in December, and to around 1 per cent in January, less than half the pre-crisis average of 2.2 per cent.

Laura Gardiner, Senior Policy Analyst at the Resolution Foundation, said:

“The UK jobs market continues to impress with employment back to a record high and unemployment still below 5 per cent. This is a strong performance, even if the strong jobs growth of recent years has slowed.

“While little has changed on the jobs front, pay growth is set to change rapidly as inflation picks up. The big question for this year is whether pay settlements respond to rising prices and a tight jobs market. If they don’t, a fresh pay squeeze later this year remains on the cards.”