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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

UK pay growth lags behind inflation; company insolvencies rise – as it happened

United Kingdom Office for National Statistics Ukraine United States Russia Stephen Evans Airbus AstraZeneca Bank of England ESMA
Commuters in Deansgate in Manchester.
Commuters in Deansgate in Manchester. Photograph: Danny Lawson/PA

Closing post

Time to wrap up - here are today’s main stories:

Goodnight. GW

European stock market closed higher

European stock markets have ended the day higher, as investors grasp onto hopes that the Ukraine crisis could be de-escalating.

All the main indices recovered at least some of Monday’s falls, after Germany chancellor Olaf Scholz says diplomacy on Ukraine was ‘not exhausted’, and Russia’s defence ministry announced some troops were moving back from the border.

In the City, the FTSE 100 finished 77 points higher at 7,608, up 1%, after falling 1.7% yesterday. AstraZeneca (+5.7%) led the risers after its prostate cancer drug trial news, with airline group IAG up 4.6% as Ukraine tensions eased and the oil price fell back.

The drop in crude prices pulled Shell (-1%) and BP (-0.8%) down, with mining companis also lower.

Germany’s DAX jumped 2%, France’s CAC gained 1.86%, and Italy’s FTSE Mib closed 2.1% higher.

David Madden, analyst at Equiti Capital, says the mood in the markets is upbeat as the Russian government announced it will start to reduce the number of troops its has stationed on the Ukrainian border:

A few hours ago, President Putin announced that he doesn’t want a war in Europe, and that added to optimistic sentiment.

Tensions are still high as Moscow is clearly concerned about the possibility of Ukraine joining NATO, but for now traders only seem to care that a war will not break out. Continental equity markets such as the DAX and the CAC advanced at an impressive rate seeing as they have the most to benefit from a war being avoided.

The impact of the first year of Brexit on Ireland has been revealed after official data showed cross-border trade between the republic and Northern Ireland jumped by €2.8bn (£2.3bn) in 2021.

Full-year figures from Ireland’s Central Statistics Office show that imports to the Irish republic from Northern Ireland were up 65% to €3.9bn, a rise of €1.5bn compared with 2020.

Exports from the republic to Northern Ireland also rocketed, up 54% to €3.7bn, an increase of €1.3bn compared with 2020 – a total trade rise of €2.8bn.

Here’s the full story:

The Unite union reports that Airbus workers at the company’s factories in Broughton, North Wales, and Filton, Gloucestershire have voted for strike action in a dispute over pay.

Around 3,000 Airbus employees voted overwhelmingly to strike after the company refused to improve a pay offer for 2021, following a pay freeze in 2020.

Strikes at the Broughton and Filton sites, which design, test and manufacture wings for Airbus’ commercial aircraft, could begin as early as March, Unite says, unless an improved offer is made.

Unite general secretary Sharon Graham said:

“This vote makes it abundantly clear that our members are totally dissatisfied with Airbus’ unacceptably low pay offer. Airbus needs to acknowledge that and table a sensible offer, one that amply reflects rising living costs, before this dispute escalates further.

“The deal simply does not reflect our members’ hard work and dedication, nor the sacrifices they have made over the last two years. There is no excuse – Airbus can well afford to pay its workers the decent rise they deserve and it should move to do so without delay.”

The UK’s productivity has exceeded pre-pandemic levels for the first time, the Office for National Statistics said today.

Output per worker in October-December rose above the 2019 average level for the first time since the coronavirus pandemic began. It grew by 1.1% quarter-on-quarter, and was 0.8% up on 2019.

Output per employee is still below the pre-pandemic trend, but output per hour worked is above trend growth, as these charts show:

UK output per worker
UK output per worker Photograph: ONS
UK output per hour worked
UK output per hour worked Photograph: ONS

AstraZeneca leads FTSE risers after prostate cancer treatment study

Pharmaceuticals giant AstraZeneca is leading the FTSE 100 risers today, after reporting positive results from late stage trials of its cancer drug Lynparza.

AstraZeneca said that a Phase III trial had shown a “statistically significant and clinically meaningful improvement” in radiographic progression-free survival among prostate cancer patients who received Lynparza and abiraterone, a hormone therapy drug.

Lynparza plus abiraterone reduced the risk of disease progression by 34% versus standard-of-care in 1st-line metastatic castration-resistant prostate cancer, AstraZeneca reported.

Susan Galbraith, executive vice president of Oncology R&D, AstraZeneca, explained:

“This Lynparza combination has the potential to afford first-line patients more time without disease progression while also maintaining their quality of life.

The PROpel results are impressive because active comparator trials set a high bar and, in this trial, Lynparza plus abiraterone showed a significant clinical improvement when compared to an active standard of care in patients with metastatic castration-resistant prostate cancer, regardless of whether they have an HRR gene mutation.”

Shares in AstraZeneca are up 5.5%.

The oil price has fallen further from Monday’s seven-year highs, following signs that the Ukraine crisis could be easing.

US crude is now down over 4% at $91 per barrel, with Brent crude dropping to around $92.75/barrel.

German chancellor, Olaf Scholz, has told a press conference in Moscow that he welcomed the pullback of some Russian troops from near Ukraine on Tuesday.

Speaking after meeting president Vladimir Putin, Scholz added that a diplomatic solution remained possible, Reuters reports.

The diplomatic possibilities are far from being exhausted … That we hear now some troops have withdrawn is a good sign, we hope more will follow.

It should be possible to find a solution. No matter how difficult and serious the situation seems to be, I refuse to say it is hopeless.

Putin told the joint press conference that western assurances that Ukraine will not join Nato anytime soon were not good enough and that Russia needed to resolve the issue now.

A closely watched survey of factories in New York state has found that activity remains broadly flat this month.

The Empire State manufacturing survey’s general business conditions index edged up four points to 3.1, from below zero in January. Economists had expected a stronger increase, to around 12.0.

Thirty-four percent of respondents reported that conditions had improved over the month, while 30 percent reported that conditions had worsened.

The survey also found that factories lifted their prices at a faster rate this month:

New orders and shipments held steady, and unfilled orders increased. Delivery times continued to lengthen. Labor market indicators pointed to a solid increase in employment and a longer average workweek.

The prices paid index remained near its recent peak, and the prices received index reached a new record high.

Business optimim dipped, with manufacturers expecting longer delivery times, alongside higher prices and increases in employment in the coming months.

UK ministers have outlined further details on how the government intends to make developers and manufacturers in the housing industry in England shoulder the costs of replacing dangerous cladding in an effort to protect leaseholders.

The Department for Levelling Up, Housing and Communities said on Monday that under the plans developers and manufacturers could in effect be blocked from the housing market if they did not help fix cladding safety issues.

The changes would put into law a commitment to protect leaseholders living in medium- or high-rise buildings from having to pay anything for the removal of unsafe cladding.

Gemma Whittaker, principal associate at the law firm Gowling WLG, explains:

“The proposed amendments to the Building Safety Bill reveal the finer detail of how the government intends to hold to account those it sees as ‘not doing the right thing’- for example the new plans include “cost contribution orders” for manufacturers who have been successfully prosecuted for breaching regulations, in order to force them to pay their “fair share”.

“It will be interesting to see how developers, and their insurers, react to this attempt to spread the cost burden, particularly given some of the other proposed measures such as the ability to refuse planning permission or building control sign off for those that do not pay.”

Updated

Wrongly convicted Post Office workers say former bosses should face jail

Former Post Office workers who were among those wrongfully convicted for theft, fraud and false accounting have called for the company’s former management to go to jail for their part in the long-running scandal.

More than 700 Post Office operators were prosecuted between 2000 and 2014, based on evidence from the Horizon IT system, which was installed and maintained by Fujitsu.

Damian Owen, who was manager of a Post Office branch in Bangor, north Wales, was jailed for eight months after he was accused of stealing £25,000 as a result of computer errors. His conviction was quashed in 2021.

Owen was at times lost for words as he told the inquiry into the scandal about his time in prison.

“I lost an awful lot of weight,” Owen told the inquiry. “I did what I could to pass the time as quickly as I could.”

Owen said the £25,000 hole in his branch accounts appeared shortly after Horizon system was installed, and he knew the figures didn’t add up.

“We never held that amount of money there. It was a small branch,” Owen said.

“As far as I was aware, the most held there was £13,000.”

Back in the UK, startup Britishvolt has gained new investment worth £40m from Glencore in the latest stage in its ambitious plan to build one of the UK’s only large-scale battery factories.

It is aiming to treble its funding with £200m in a third funding round, with Glencore serving as the anchor investor. The FTSE 100 miner has already invested millions of pounds in Britishvolt in earlier funding rounds that valued the battery company at more than $1bn (£740m).

The battery factory project is seen as key to the prospects for the UK automotive industry as it moves away from internal combustion engines and embraces battery electric vehicles with zero carbon emissions from the exhaust.

Wall Street jumps on hopes of Russia de-escalation

The New York Stock Exchange on Wall Street.
The New York Stock Exchange on Wall Street. Photograph: Erik Pendzich/REX/Shutterstock

The New York stock market has opened higher, on optimism that the Ukraine crisis may be easing.

The S&P 500 index of US stocks has risen 1.4% in early trading, as investors welcome the Russia’s defence ministry’s announcement it will withdraw some of its troops from the border with Ukraine.

The Dow Jones industrial average of 30 large US companies has gained 451 points, or 1.3%, to 35,017, with the technology-focused Nasdaq up 1.75%.

Craig Erlam, senior market analyst at brokerage OANDA, says:

Risk appetite is much improved on Tuesday following reports that Russia is pulling back some troops, a significant de-escalation that makes the prospect of an invasion this week much less likely.

The Kremlin maintains that it never intended to invade Ukraine and the return of some troops to their regular bases following military exercises is proceeding as was always planned. While risks remain elevated, this looks like a big step in the right direction, and investors, like everyone else, are breathing a huge sigh of relief.

Nato secretary general Jens Stoltenberg has said Russia’s announcement of a troop withdrawal gives grounds for optimism, but the alliance has yet to see real de-escalation:

Our Moscow correspondent, Andrew Roth, has more details :

The size of the withdrawal remains unclear and may involve only a fraction of Russia’s forces at the border, which western officials estimate at more than 60% of the country’s ground forces.

The announcement of the withdrawal came in a statement from the defence ministry spokesperson Igor Konashenkov, who described ongoing exercises that involved forces from “practically all military districts, fleets, and the airborne forces”.

“Units of the southern and western military districts, which have accomplished their missions, are boarding trains and trucks and will head for their garrisons later today,” Konashenkov said.

US intelligence officials have today accused right-leaning financial news website Zero Hedge of amplifying Kremlin propaganda, Associated Press reports:

The officials said Zero Hedge, which has 1.2 million Twitter followers, published articles created by Moscow-controlled media that were then shared by outlets and people unaware of their nexus to Russian intelligence. The officials did not say whether they thought Zero Hedge knew of any links to spy agencies and did not allege direct links between the website and Russia.

Zero Hedge denied the claims and said it tries to “publish a wide spectrum of views that cover both sides of a given story.”

More here.

January’s jump in US producer prices means more inflation is heading American consumers’ way, warns Mohamed El-Erian of Allianz:

Greg Daco of Oxford Economics points out that core PPI inflation was also higher than forecast (that strips out food, energy and trade services).

US producer price inflation hotter than forecast

Just in: US producers raised their prices faster than expected last month, adding to the inflationary pressures hitting Americans.

The PPI index rose by 1.0% in January - up from 0.4% in December, and twice as fast as expected.

Goods prices jumped by 1.3% in the month, while services were up 0.7%.

On an annual basis, final demand prices rose by 9.7%, as firms lifted their prices over the last year. That’s slightly lower thatn December’s 9.8%, but higher than Wall Street expected.

The Bureau of Labour Statistics reports that hospital outpatient care prices, which rose 1.6 percent, lifted the services PPI index, adding:

The indexes for machinery and vehicle wholesaling; apparel, jewelry, footwear, and accessories retailing; traveler accommodation services; portfolio management; and truck transportation of freight also moved higher.

Goods inflation was lifted by more expensive motor vehicles and equipment, diesel fuel, gasoline, beef and veal, dairy products, and jet fuel.

Updated

A tipper truck on a road through a BHP Billition iron ore mine at Newman, about 1,300 km (800 miles) north of Perth.
A tipper truck on a road through a BHP Billition iron ore mine at Newman, about 1,300 km (800 miles) north of Perth. Photograph: Tim Wimborne/Reuters

Scandal-hit mining companies BHP and Glencore have paid out a record $12bn in dividends to investors as the price of the materials the companies mine continues to boom.

BHP, the world’s biggest mining group which scrapped its dual stock market structure dropping London last year for a sole listing in Sydney, announced a record $7.6bn half-year dividend on Tuesday.

The company makes most of its profits from mining iron ore in the Pilbara region of Western Australia, where it has ministerial permission to destroy as many as 40 sites of cultural importance to the country’s native Aborigines.

Following investor outrage at its mining plans, the company subsequently pledged not to damage any of the sites without “extensive consultation” with native owners.

BHP is aiming to transition its business to derive half of revenues from “future facing commodities” – metals needed in a low-carbon economy beyond fossil fuels – by 2030. BHP made $9.7bn in adjusted profits for the half year to the end of December, a 57% year-on-year increase.

Anglo-Swiss rival Glencore, one of the world’s biggest miners and commodity traders, has also benefited from the soaring price of oil, gas and metals as economies seek to recover from the pandemic.

The company paid a $4bn dividend to shareholders as it reported record adjusted profits of $21.3bn last year, an 83% increase over 2020. Glencore also said it had set aside $1.5bn to pay for the costs of investigations into bribery and market manipulation.

Company insolvencies double year-on-year

The number of company insolvencies in England and Wales doubled year-on-year in January, as rising inflationary pressures and the pandemic cause some firms to collapse.

There were 1,560 company insolvencies in January, up from 758 in January 2021, and above pre-crisis levels of 1,508 in January 2020. It’s also an increase on December’s 1,486.

Most of the insolvencies were directors voluntarily folding their companies because they couldn’t meet their financial obligations. There were 1,358 Creditors’ Voluntary Liquidations (CVLs), more than double the number in January 2021, and 34% higher than in January 2020.

The number of compulsary liquidations also more than doubled year-on-year in January, to 118, still 60% lower than January 2020.

Insolvencies in England and Wales
Insolvencies in England and Wales Photograph: The Insolvency Service

Christina Fitzgerald, Vice President of insolvency and restructuring trade body R3, says firms faced a “perfect storm of issues” in the last two months

New Covid restrictions, a slowdown in consumer spending, and rising inflation such as energy bills all hit companies:

“The increase in corporate insolvencies is being driven by a rise in compulsory liquidations, which were 131.4% higher than this time last year. This suggests that creditors are now starting to take action over unpaid debt, having been legally prevented from doing so since the start of the pandemic.

“Numbers of Creditors’ Voluntary Liquidations have remained similar compared to this time last month, which suggests that many company directors are continuing to choose to close their businesses rather than attempting to carry on trading in the current climate.

Claire Burden, partner in the Advisory Consulting team at wealth management group Tilney Smith & Williamson, agrees that rising costs are hurting companies:

As the western world moves out of the pandemic, we are starting to see several macro-economic factors causing distress in businesses in the UK – primarily driven by global inflationary trends (which is resulting in increasing cost of living, bringing wage pressure) and also continued supply chain disruptions and raw material and commodity shortages. Sectors that are most vulnerable to all of these at the same time – such as construction, manufacturing and technology will be the most impacted. It may not be easy for SMEs to be able to pass cost increases onto the consumer, leading to short-term liquidity pressures and longer term distress.

Businesses that thrived under the pandemic are now at risk – for example online low-cost retail businesses are now being put under considerable pressure as they struggle to pass price increases onto customers for fear of high volume demand falling away.

We see clients in cyclical sectors such as agriculture suffering from liquidity pressures due to wage inflation, skills shortages, increases in cost of raw materials (due to supply disruptions and lower exports from producers) and, to some extent, the cost of transitioning to sustainable farming – which is impacting near-term cash availability.

A record number of companies went into voluntary insolvency in England and Wales in the final quarter of 2021, the Insolvency Service reported late last month.

Updated

EU watchdog: Acute risk of market corrections

The bull and bear symbols outside the German stock exchange.
The bull and bear symbols outside the German stock exchange. Photograph: Ralph Orlowski/Reuters

The European Union’s securities watchdog has warned there is a high risk of market corrections, as the Ukraine crisis adds to nervousness.

In its latest report on trends, risks and vulnerabilities, the European Securities and Markets Authority (ESMA) warns that retail investors are at particular risk if markets dive.

The pandemic’s resurgence at the end of 2021 and an uncertain economic and monetary policy outlook are leading investors to adjust their growth and market expectations, ESMA points out.

And it continues to see high risks of further “possibly significant” market corrections, as markets remain nervous and geopolitical tensions are rising.

Verena Ross, Chair, said:

“All investors should consider that the risk of market corrections remains acute. This was demonstrated last year in two episodes of sell-offs largely driven by news first related to Evergrande and then to the resurgence of Covid-19. The markets remain highly volatile and ESMA sees growing uncertainty for investors going forward.”

“Retail investors are of particular concern to ESMA. Their participation in financial markets has increased substantially in recent years, with new investors taking advantage of the convenience and user-friendly features of mobile trading platforms. This diversification offers opportunities but also comes with risks, and ESMA remains concerned about risks to retail investors who buy assets with expectations of significant price growth, and without realising the high risks involved.”

Up to a fifth of UK households have struggled to pay their TV, internet and phone bills in the last year, with some having to cancel services or cut back spending on essentials such as food and clothing to make payments, according to research by Ofcom.

The telecoms regulator’s annual affordability report highlights the rising pressure on household finances, with consumers facing a further inflation-busting increase in mobile, telephone and broadband bills of as much as 10% this year.

“People rely on their broadband for staying in touch, working and learning from home,” said Lindsey Fussell, group director of network and communications at Ofcom.

“But for those who are really struggling with rising bills, every penny counts.”

Ofcom warned that with the above-inflation price increases outstripping expected rises in benefits such as universal credit, more than 4m homes are facing the prospect of a further fall in income in real terms. More here:

We also have jobs data from the eurozone, which shows that employment in the euro area rose above its pre-pandemic highs at the end of last year.

The nmber of people in work in the eurozone rose to nearly 161.8m in Q4 2021, an increase of 0.5% on the third quarter, and 2.1% up on a year ago.

The third quarterly increase, despite the autumn wave of Covid-19 infections, lifted the eurozone employment total over the level in Q4 2019, just before the pandemic.

It suggests that Europe’s economy handled the latest surge of infections relatively well, with the eurozone economy growing 0.3% in October-December, and the unemployment hitting a record low in December.

Here’s a chart showing real wages shrank at the end of last year:

Growth in average weekly earnings has fallen the furthest behind inflation since 2014
Standfirst ...
Average weekly earnings
CPIH inflation
-2
0
2
4
6
8%
2010
2014
2018
2021
Guardian graphic. Source: ONS. Note: annual growth in regular pay (excluding bonuses), single-month figures

German investor sentiment has picked up, on hopes that the economy will pick up as Covid-19 restrictions are eased.

The ZEW economic research institute’s economic sentiment index rose to 54.3 this month, from 51.7 in January.

ZEW President Achim Wambach said in a statement:

“The economic outlook for Germany continues to improve in February despite growing economic and political uncertainties,”

The German economy shrank by 0.7% in the last quarter of 2021, as a wave of Covid-19 cases led to new restrictions, and manufacturers faced ongoing supply chain problems.

Gas prices, which jumped yesterday on Ukraine invasion worries, have dipped this morning.

The day-ahead contract for wholesale gas delivery in the UK has dropped by 8% to 173p per therm.

That’s the lowest since the start of February; yesterday it hit two-week highs of nearly 200p/therm.

Oil has dipped back from yesterday’s seven-year highs above $96 per barrel.

Brent crude has slipped back below $94/barrel, down 2.5% today.

Analysts at SP Angel’s Energy Team explain:

  • Oil prices have slipped from fresh highs on reports that some troops in Russia’s military districts adjacent to Ukraine are returning to bases, a move that could de-escalate tension between the two countries
  • Russia’s defence ministry has confirmed that while large-scale drills across the country continued, some units of the Southern and Western military districts have completed their exercises and started returning to base

Markets recover some losses on hopes of Russian de-escalation

European stock markest have risen this morning after yesterday’s slide, lifted by hopes of a possible de-escalation of the Ukraine crisis.

The UK’s FTSE 100 index is currently up 40 points, or 0.5%, clawing back a little of Monday’s 129-point fall (-1.7%).

Travel stocks are recovering, with British Airways parent company IAG up 3.3%. Russian steelmaker Evraz has gained 4%, while engineering group Melrose, whose aerospace arm will benefit from a travel recovery, is up 4.3%.

On the smaller FTSE 250, holiday group TUI (+4%) and budget airline Wizz Air (+4.1%) are leading the rally.

There are chunkier gains in Frankfurt, where Germany’s DAX is up 1.1%, as is France’s CAC index in Paris, after both fell around 2% yesterday.

The recovery comes after Russia’s defence ministry that it will withdraw some of its troops from the border with Ukraine, in a possible de-escalation of the threat of a potential invasion.

But the size of the withdrawal remains unclear and may involve just a fraction of Russia’s forces at the Ukrainian border, as our Ukraine crisis liveblog explains:

Victoria Scholar, head of investment at interactive investor, says there is still nervousness towards the possibility of a Russian invasion of Ukraine:

UK Foreign Secretary Liz Truss has warned on Tuesday that an invasion of Ukraine is highly likely.

However more positive comments this morning from IFAX which said that Russia’s military says some units are returning to their bases have lifted market sentiment with European markets now trading in a more upbeat manner.

Updated

Full story: Wage rises not keeping pace with inflation

UK wage growth picked up in January as job vacancies hit a new record high, but pay failed to keep pace with the highest inflation rate for three decades.

The Office for National Statistics said the annual growth rate for average total pay, including bonuses, increased to 4.3% in the three months to December, up from a rate of 4.2% in the three months to November.

The rate was boosted by bonus payments in December, with the strongest pay growth for workers in finance, insurance and the property industry. Regular wage growth excluding bonuses eased by 0.1 percentage points to an annual rate of 3.7%.

The performance beat the expectations of City economists for total wage growth of 3.8% and a rise of 3.6% for regular pay.

However, taking into account inflation – which is at the highest level since the early 1990s amid a dramatic increase in household energy costs and wider cost of living crisis – real pay fell on the year by 0.1%. Wages excluding bonuses fell by 0.8%.

Sam Beckett, the head of economic statistics at the ONS, said: “After taking account of recent rises in consumer prices, real total pay fell in the year to October-December 2021, despite a strong recovery in bonuses.”

The number of job vacancies across the UK increased in January to a fresh record high of almost 1.3 million after two consecutive monthly falls when some employers paused their hiring plans amid increased uncertainty over the economic outlook due to Omicron.

In a sign of rising confidence among firms, the number of employees on UK company payrolls increased by 108,000 in January to a record 29.5 million. The unemployment rate for the three months to December fell by 0.2 percentage points to 4.1%, although remains 0.1 percentage points higher than before the coronavirus pandemic.

Here’s the full story:

Despite the cost of living squeeze, Charles Hepworth, investment director, GAM Investments, predicts the Bank of England will continue to lift interest rates -- with the City expecting a series of hikes in 2022.

“UK unemployment continues its improving trend, falling by 38,000 in the final quarter of 2021. While average wages have bumped higher over the year by 3.6%, this is still well below the average inflation rate, so a continual cost of living squeeze for employed and unemployed alike.

“Still, the healthy jobs market can only push the Bank of England further into more hawkish tilting. Markets are now more than convinced that further hikes to the base rate are coming this year, with at least six quarter point hikes priced in by December 2022. Such a rapid turnaround in central bank policy is what happens when they find themselves firmly stuck behind the curve, playing catch-up.”

Updated

The cost of living crisis is likely to worsen in the coming months, warns Stephen Evans, Chief Executive of Learning and Work Institute.

“The cost of living crisis is setting in, with real wages falling in the last quarter of 2021. This is only likely to worsen with current inflation and rising energy prices - the Government must do far more to help protect living standards.

Meanwhile, the recruitment crisis continues. The Government’s Way to Work initiative is focused on the wrong problem and it should instead do more to help the 1.1 million fewer people in the labour market than on pre-pandemic trends, driven by rising numbers of people who are long-term sick. This shortage of workers is making recruitment difficult and means employment is still almost 600,000 lower than pre-pandemic despite record vacancies. We need a new Plan for Jobs, Growth and Living Standards.”

More people out of labour force with long-term sickness

The number of people out of the labour force increased during the last quarter of 2021, partly due to a worrying increase in long-term sickness.

The economic inactivity rate increased by 0.1 percentage points in the October-December quarter, to 21.2%. In total, there were nearly 400,000 more people neither working nor looking for a job, compared to before the pandemic.

Earliier in the pandemic, this had been driven by a jump in students. That trend has reversed, though, while the long-term sickness total has swelled:

UK economic inactivity
UK economic inactivity Photograph: ONS

James Smith, economist at ING, explains:

Economic inactivity is another potential source of recent worker shortages. Like we’ve seen in the US, there’s been a pronounced increase in the number of working-age people neither in nor actively looking for work since the pandemic began.

But unlike the US, where a lot of this trend has been attributed to early retirements, it’s long-term sickness rates that have risen and helped prevent UK employment from reaching pre-virus levels. How much of this is linked to long-Covid is not yet clear.

UK economic inactivity

Despite payroll totals reaching new records, the number of people employed in the UK was still over half a million below pre-Covid-19 levels in October-December.

The 587k drop in employment since the pandemic began is driven by a big fall in self-employment (down 850,000 compared to December-February 2020), as this chart shows:

UK employment data
UK employment data Photograph: ONS

Tony Wilson, director of the Institute for Employment Studies, says many older workers have dropped out of the labour force:

“Supply simply can’t keep up with the demand in the labour market at the moment. Despite vacancies hitting another record high, employment is still stuck more than half a million below pre-pandemic levels, with low unemployment appearing to be the result of people leaving the labour market entirely.

As a result this is now the tightest labour market in at least fifty years, with nearly as many vacancies as there are unemployed. These trends are being driven in particular by older people leaving work.

There are now nearly six hundred thousand fewer older people in the labour market than on the eve of the pandemic, falls which dwarf anything that we have seen in at least thirty years. Overall, four fifths of the fall in labour force participation is due to fewer older people in the labour market.

Updated

ONS: Pay growth picked up in January

The ONS has also released data showing that pay growth accelerated in January.

That would bring some relief to employees facing the pain of inflation, but could also spur the Bank of England to raise interest rates at a faster pace.

Early estimates for January 2022 indicate that median monthly pay increased by 6.3% compared with January 2021, and was 10.3% higher than pre-pandemic levels (February 2020).

That’s according to experimental monthly estimates of payrolled employees produced by HMRC.

Estimates of UK pay in January 2022
Estimates of UK pay in January 2022 Photograph: ONS/HMRC

Danni Hewson, AJ Bell financial analyst, says it’s a sign that some employees are lifting pay rates to fill vacancies.

“Andrew Bailey might have urged employers not to raise pay in a bid to keep inflation in check but when faced with record vacancy levels, even if the number of new vacancies hitting the market is slowing, employers are having to reach for the cheque book.

Workers have been feeling the squeeze with the price of just about everything going up and wage growth over the three months to the end of the year is simply not keeping pace. Early indications for January suggest that’s changing as businesses battle to not only recruit workers but to keep their existing ones with the number of people hopping from job to job reaching record levels.

Hannah Slaughter, Senior Economist at the Resolution Foundation, says:

“The UK labour market has defied the Omicron wave and continued to tighten, with jobs, vacancies and job moves up, and unemployment continuing to fall.

“There are nascent signs that this welcome activity may be starting to feed through into stronger pay growth – though how much pay pressure remains unclear.

“While some policy makers are rightly worried about accelerating nominal wages boosting UK inflation, they should also be worried about Britain simultaneously experiencing the tightest real wage squeeze in generations. To square this circle, the UK needs faster productivity growth.”

Real regular pay fell 1.2% in December amid "perfect cost-of-living storm"

In December alone, regular pay (excluding bonuses) shrank by 1.2% year-on-year once you account for inflation, the worst fall since 2014.

That shows that workers felt mounting cost of living pressures at the end of last year, due to rising prices for goods and services.

Total pay was up 0.1% after inflation in December, though, due to the increase in bonus payments (which boosted pay in the financial and business services sector).

The TUC says:

  • Today’s labour market figures show real wages fell by 1.2 per cent in the year to December – the largest fall in the value of earnings in eight years
  • The unemployment rate for BME workers is still more than twice as bad as the rate for white workers
  • Number of people on zero-hours contracts hits 1 million

TUC General Secretary Frances O’Grady said:

“Working families need financial security. But they face a perfect cost-of-living storm.

“Pay packets are plummeting in value as bills and prices sky-rocket.

“This huge pressure on household budgets will only get worse unless the government takes proper action.

“That means working with unions and employers to get pay rising across the economy.

After the longest wage squeeze in more than 200 years, Britain urgently needs a pay rise.”

Updated

Labour reaction

Pat McFadden MP, Labour’s Shadow Chief Secretary to the Treasury, has warned that wages will be further squeezed when gas and electricity bills surge in April when the energy cap is lifted.

“These figures confirm working people still face a fragile recovery in the face of a growing cost of living crisis and spiralling inflation.

“12 years of the Conservatives’ record means working people today will not only be paying more in tax under the Conservatives but face heating bills rocketing, prices rising and falling real wages.

“Our plan to deal with rising energy bills is funded by a one-off windfall tax on oil and gas producers, and would save most households around £200, with £600 off bills for those who need it most.

“The Tory proposals for a buy now pay later loan on energy just don’t measure up to the scale of the pressures being faced by households.”

Vacancies at record, but growth slows

The number of vacancies at UK firms continued to rise across most industries, with 10 of the 18 categories displaying record highs in the three months to January.

Vacancies picked up in January, after dipping in the previous two months.

The largest quarterly increase was in accommodation and food service activities, which grew by 21,400 (13.6%) as bars, restaurants, hotels and other leisure firms struggled to recruit staff.

But the overall rate of growth slowed, to 9.6% in November-January, the lowest since February to April 2021, and down from 24.7% in the previous quarter.

Vacancies rose to a record 1,298,400, but for the first time since December 2020 to February 2021 the number of unemployed people per vacancy didn’t fall (it remained at 1.1).

UK vacancies
UK vacancies Photograph: ONS

The single-month vacancy estimate for January 2022 showed an increase after two consecutive monthly falls, while data from jobs search engine Adzuna shows a strengthening of vacancies in the latter part of January, tthe ONA adds.

UK vacancies
UK vacancies Photograph: ONS

Updated

Public sector pay falls sharply behind inflaion

Public sector workers were hit hardest by the cost of living squeeze, while financial workers saw their pay packets boosted by bonuses at the end of the year.

Average total pay growth across the public sector was 2.6% in October-December, well below inflation, which averaged 4.4% (on the CPIH measure which includes owner occupiers’ housing costs).

Average total pay for the private sector grew by 4.6% over the period, slightly ahead of CPIH inflation.

Private sector pay was lifted by the finance and business services sector, where pay grew by 8.1% after an increase in bonus payments compared with December 2020.

Pay by sectors

Government reaction

Chancellor of the Exchequer, Rishi Sunak said:

“Our £400bn economic plan has protected our jobs market through the pandemic and it is now healthier than most could have hoped for.

“Payrolled employee numbers are at a record high and redundancies are at an all time low thanks to our Plan for Jobs.

“We’re continuing to help more people into work, and are providing support for the cost of living worth over £20 billion across this financial year and next.”

UK redundancies
UK redundancies Photograph: ONS

Minister for Employment, Mims Davies MP said:

“Today’s figures show further positive signs of recovery, with unemployment continuing to drop and 436,000 people joining company payrolls since the start of the pandemic, a record high number of employees including more young and older workers.

“Through our Way to Work campaign we are making sure that anyone who is ready to work can get into a job faster than ever before, allowing them to progress to a fulfilling career, giving them financial independence as well as improved wellbeing.”

UK labour market flows
UK labour market flows Photograph: ONS

Inflation vs wage growth
Inflation overtook wage growth in the last quarter Photograph: ONS

Here’s ONS head of economic statistics Sam Beckett with the key points from the jobs report:

Chart: How wage growth fell behind inflation

This chart shows how earnings growth has slowed, with real pay falling below inflation in the three months to December.

UK pay growth
UK pay growth in nominal, and real terms Photograph: ONS

This is the first quarter since June to August 2020 that total pay growth (including bonuses) has fallen behind inflation, or May to July 2020 for regular pay, the ONS explains.

Updated

Introduction: UK wages lagging inflation as cost of living bites

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Wages across the UK are lagging behind inflation, as the cost of living squeeze hit households at the end of last year, even as vacancies hit record levels.

The latest UK labour force statistics, just released, show that earnings failed to keep up with rising prices in the last quarter of 2021.

Basic pay rose by 3.7% per year in the October-December, while total pay (including bonuses) grew by 4.3% -- up from 4.2% a month ago.

That means that real pay packets fell, once you adjust for inflation over the quarter.

However, the wages figures - especially for total pay, are higher than City economists expected.

The Office for National Statistics explains:

In real terms (adjusted for inflation), total and regular pay fell on the year at negative 0.1% for total pay and negative 0.8% for regular pay.

Previous months’ strong growth rates were affected upwards by base and compositional effects. These temporary factors have largely worked their way out of the latest growth rates, however, a small amount of base effect for certain sectors may still be present.

UK inflation hit 5.4% in the 12 months to December, and is expected to climb above 7% by April before easing off. That will leave households facing the worst squeeze on their disposable incomes for at least 30 years, the Bank of England warned earlier this month.

The jobs report also shows that the UK unemployment remained at 4.1%, the same as a month ago, in the first three months covering the end of the furlough scheme. That’s a drop of 0.2% on the previous quarter, when it was 4.3%.

The number of job vacancies in November 2021 to January 2022 rose to a new record of 1,298,400, an increase of 513,700 from its pre-coronavirus January to March 2020 level.

However, the rate of growth in vacancies continued to slow down, the ONS says.

It also estimates that the number of payrolled employees rose again, by 108,000 in January, to a record 29.5 million.

But, the number of people in employment remains below pre-pandemic levels.

We’ll have more details and reaction to the jobs report shortly.

Elsewhere, European stock markets are expected to open lower, after fears of a Russian invasion of Ukraine hit shares yesterday. German chancellor Olaf Scholz is travelling to Moscow today to meet Vladimir Putin in a bid to avert war.

The agenda

  • 7am GMT: UK labour force report
  • 10am GMT: Eurozone GDP report for Q4 (second estimate)
  • 10am GMT: ZEW index of German economic sentiment
  • 1.30pm GMT: US producer price inflation index for January

Updated

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