Jobs growth strengthening but pay recovery risks running out of steam

Welcome news on jobs has seen employment hit a new record high, but real pay growth has fallen to its lowest level since February 2015, the Resolution Foundation said today (Wednesday) in response to the latest ONS labour market statistics.

The overall employment rate hit another record high (74 per cent), with strong growth recorded in both full-time jobs and self-employment, which is at its highest ever level (4.62 million).

However, the welcome news on employment was tempered by a further slowdown in the UK’s pay recovery, with real (regular) earnings growth falling to 1.9 per cent – as predicted earlier this week by RF. This is the slowest growth rate since February 2015 and below the pre-crisis average of 2.2 per cent.

The Foundation notes that with inflation now rising and set to increase further in the coming months, fresh impetus will be needed to maintain momentum in the UK’s pay recovery.

It adds that despite its impressive jobs record, the UK remains some way short of being a genuine world leader on employment. Further progress will be needed – particularly among BAME and disabled people, the low-qualified and other groups whose employment prospects vary hugely across the country – in order to make the Chancellor’s laudable goal of securing full employment a reality.

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

“The UK jobs market continues to strengthen, with strong growth in both full-time jobs and self-employment.

“But while recent employment trends are very positive, the UK’s pay recovery risks running out of steam. Real earnings growth has fallen back below its pre-crisis trend, even while inflation remains close to zero.

“One of the key economic tests for 2016 is whether the early signs of a productivity recovery will strengthen enough to offset rising inflation and put the UK’s pay recovery back on track.”