Strong rise in employment but pay rebound tailing off

Uncertainty over pay prospects in UK highlights differences with US ahead of possible rate rise by Fed

Britain’s jobs market continues to show signs of tightening but real wage growth is falling back relatively sharply, highlighting the difference between the UK and US as the Fed considers a rate rise, the Resolution Foundation said today (Wednesday) in response to the latest ONS labour market figures.

Employment reached another historic high of 73.9 per cent, with strong growth among employees and the self-employed. Unemployment fell again to 5.2 per cent – its lowest level in almost a decade.

Despite inflation being negative in October – well below its target rate of 2 per cent – real-terms earnings growth has fallen back below the pre-crisis trend of 2.2 per cent. Average weekly earnings grew by 2.1 per cent in the three months to October, as predicted by the Resolution Foundation earlier this week. With pay growth falling from 2.7 per cent in the previous quarter, the latest figures appear to mark an end to the ‘pay rebound’ that existed throughout much of 2015.

RF analysis published earlier this week found that the current pace of typical pay growth was set to slow in 2016, with the strength of earnings growth ultimately determined by whether productivity increases enough to offset rising inflation.

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

“Britain’s jobs recovery continues to impress, with strong growth among both employees and the self-employed.

“But the pay rebound we’ve enjoyed throughout much of 2015 appears to have weakened, despite inflation remaining at historically low levels.

“With many expecting the Fed to raise interest rates later today, the focus will soon shift onto when the Bank of England will make a similar move. But with rising inflation likely to slow the pace of Britain’s pay recovery in 2016, the first move may remain a little way off.

“The other big economic uncertainly next year is what will happen to productivity, and how it will affect pay. This challenge is particularly acute in low-paying sectors such as retail and hospitality, particularly in the light of the introduction of the National Living Wage in April.”