By Jack Mendel
The rate of UK unemployment rose to 4.2 per cent in the three months to June from 3.9 per cent in the previous three months, the Office for National Statistics said.
However, this was tempered by annual growth in pay – excluding bonuses – up to 7.8 per cent in June. This is the highest regular growth rate since records began in 2001.
This was not all bad news however, with wages increasing in real terms by 0.5 per cent, helping to sooth Britons’ cost of living woes.
This comes after the economy grew last Friday by 0.2 per cent according to the ONS.
The rapid increase in wage growth will cause concern for Andrew Bailey and the Bank of England’s MPC (Monetary Policy Committee), who have warned about the inflationary impact of wage increases.
The central bank earlier this month notched up its 14th straight rate hike – with the next meeting on 21 September. Bailey also doubled down on claims that Brits should go easy on pay demands, despite cost of living pressures.
Annual growth in regular pay (excluding bonuses) was 7.8 per cent in April to June 2023, this is the highest regular annual growth rate we have seen since comparable records began in 2001.
ONS director of economic statistics Darren Morgan said: “The number of unemployed people has risen again while the number of people working has fallen back a little. This is mainly due to people taking slightly longer to find work than those who started job hunting in recent months.”
“The drop in those neither working nor looking for work is mainly among those looking after their family or home. Meanwhile the number of people prevented from working by long-term sickness has risen again to a new record.
“Job vacancies have now fallen over a quarter of a million since this time last year. However, they remain significantly above pre-COVID levels.
“Earnings continue to grow in cash terms, with basic pay growing at its fastest since current records began. Coupled with lower inflation, this means the position on people’s real pay is recovering and now looks a bit better than a few months back.”
The latest ONS figures also showed there were 160,000 working days lost because of strike action in June, with more than half being in the health and social care sector.
When it came to pay, there were 97,000 more Brits on the payroll, taking the total to over 30m, which is an increase of more than 1.2m compared to February 2020
What does this mean for rates?
Experts warned that the increase is likely to lead to another rate hike, as the Bank of England looks to tame inflation, at 7.9 per cent.
There will also be pension implications – with the ‘triple lock’ ensuring that the state pension moves in line with average wage growth or inflation, whichever is higher.
Adrian Lowery, financial analyst at wealth manager Evelyn Partners, said “above-expectations wage growth will be watched nervously at the Treasury as it threatens to add fuel to the triple lock fire.”
“The wages element of the triple lock – annual earnings growth for May to July – won’t be available until next month but this outcome suggests it could be significant. Moreover, strong wage growth is likely to impair the retreat of inflation in the coming months, and the Bank of England recently warned that the pace of wage growth is a threat to its longer-term inflation target of 2 per cent”.
“While the consumer prices index for July due tomorrow is widely expected to show a fall in the headline annual inflation rate, there are reported fears in Whitehall that subsequent months could reveal a plateau or even a tick back up in the rate.
“The inflation reading for September, or a possibly even-more racy wage growth figure, will determine what could be a very substantial rise in the state pension and reignite the debate over whether the triple lock is sustainable.”
Meanwhile Richard Carter, head of fixed interest research at Quilter Cheviot: “While it is premature to call the beginning of the end of the UK’s cost-of-living crisis, the pressures are showing signs of easing. On the eve of an inflation print that is expected to reveal a marked fall, this morning’s labour market statistics show wages might be growing faster than prices for the first time in almost two years.
More to follow
