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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

UK wage squeeze continues, as jobless rate remains at 42-year low – as it happened

A job recruitment centre in central London.
A job recruitment centre in central London. Photograph: Carl Court/AFP/Getty Images

Larry Elliott: No immediate end in sight to wage

And finally.... here’s our economics editor Larry Elliott on today’s labour market report:

Firstly, it is clear that the economy is great at creating jobs but hopeless at generating pay rises. Employment is up by more than 300,000 over the past year but average earnings growth at 2.2% is slightly lower than it was in the summer of 2016.

Secondly, while employment has been a lot stronger than was feared in the run-up to the Brexit referendum, the pace of growth eased in the three months ending in August.

Finally, there is no immediate end in sight for the fall in real (inflation-adjusted) wages which have now fallen for a sixth successive month. The Resolution Foundation notes that real average earnings are no higher now than they were in 2016.

The UK pay gap
The UK pay gap Photograph: Resolution Foundation

Larry adds:

It will be well into 2018 before pay growth overtakes inflation – and this relentless squeeze on living standards will have retailers nervous as the key Christmas period nears. Consumers face a choice: tighten their belts or get deeper into debt.

Here’s his full analysis:

That’s probably all for today. Thanks for reading and commenting. GW

The pound has dropped against the US dollar since today’s jobs and earnings figures were released.

Sterling has dropped by 0.2% to $1.3166, and is a little lower against the euro at €1.119.

That’s quite a muted reaction -- reflecting the fact that nothing’s really changed in the UK today. The economy is still creating jobs, and people still aren’t getting pay increases that keep pace with inflation.

So the Bank of England still has to decide whether it should raised interest rates next month, or leave borrowing costs at their record low a bit longer.

Last month, it suggested that rates could rise in November; this sparked a sterling rally, which has faded in recent days.

Chris Bailey, European strategist at wealth manager Raymond James, says the BoE faces a tough dilemma:

“Stronger inflation figures would normally point towards a potential interest rate hike which we know is not too far around the corner. But wage growth is an ongoing concern and an interest rate rise would put pressure on the consumer who is already having their earnings eaten away by inflation.

“Given these factors I believe it is likely that we will see a minor tweak up in interest rates in November but it is not something that I would vote for if I was sitting on the Committee. Concerns around ongoing Brexit discussions and its prevailing uncertainties have only been deepened by today’s disappointing wage growth figures.”

Here’s our economics correspondent, Richard Partington, on today’s labour market report:

The lowest levels of unemployment since the mid-70s are still failing to boost the bargaining power of workers in the UK, as official figures show a sixth month of negative real earnings.

Average earnings increased by 2.2% in the three months to August, the same level recorded in the three months to July after a revision to the earlier figures, according to the Office for National Statistics. City economists had forecast growth of 2.1%.

When taking account of inflation, the ONS said real wages fell by 0.4% on the previous year, despite the unemployment rate remaining steady at 4.3% – the joint lowest level since 1975.

The figures will perplex the Bank of England as it prepares for the first interest rate hike in a decade from as early as next month. The central bank has been looking for signs of pay growth as it seeks to balance a trade-off between supporting jobs and the economy with low rates and cutting the growth in prices.

Howard Archer, chief economic adviser to the EY Item Club, said the data “fails to provide a decisive case” for the Bank to increase the cost of borrowing from 0.25%. “The squeeze on consumers remains appreciable, with obvious negative implications for personal expenditure,” he said.

The latest fall in real pay means that average earnings are no higher than they were in February 2006, despite the economy being 4.4% bigger per person than at that time, according to the Resolution Foundation.

More here:

Over in parliament, prime minister Theresa May and Labour leader Jeremy Corbyn have sparred over today’s labour market figures.

Corbyn welcomed the drop in unemployment (‘a first’, according to May), before arguing that the fall in real wages shows the economy is weak. What’s the government going to do about it?

May says the government have cut taxes from basic taxpayers (due to the rise in the tax-free allowance, I think), the Living wage, and the doubling of free childcare.

This prompted Corbyn to suggest May breaks her own duck and answers his question...

Here’s a clip:

Andy Sparrow’s liveblog has full details of what many commentators are calling a win for the member for Islington North.

Britain’s youth unemployment rate has fallen to 11.9% over the last year, from 13.7%.

That’s because fewer 16-24 year olds are looking for work, and more are in full-time education (or economically inactive for other reasons).

Young people in the labour market

But the real wage squeeze is hurting young people who are in work (earlier this week, we learned that many are having to borrow to pay for basics)

Dr Carole Easton OBE, chief executive of the Young Women’s Trust, says young mothers are finding it particularly tough:

“We have a youth debt epidemic and, as prices rise and wages remain low, this is only set to worsen. It’s time for action.

“Young women in particular are getting stuck on low pay, falling into debt and using foodbanks to put food on the table. It can be especially hard for young mums; in many cases, low pay means an hour’s childcare can cost more than an hour’s wages.

Revealed: Who's suffering worst from the pay squeeze

Estate agents and hairdressers are suffering some of the tightest wage squeezes, today’s report shows.

City workers, administrators and IT staff, though, are getting inflation-beating pay packets:

UK pay changes

(this shows real wages - so pay minus inflation)

Updated

Britain’s employment rate has fallen back from its record high.

The proportion of 16-64 year olds in work dipped to 75.1% in the three months to August, down from 75.3% a month ago.

The employment rate had been rising steadily since the end of 2011, as Britain clawed its way back from the financial crisis.

The UK employment rate
The UK employment rate Photograph: ONS

Now, it’s very plausible that last month’s small fall is only a blip.

But, it could be a sign that the labour market has peaked.....

Sarah O’Connor, the FT’s employment correspondent, tweets:

Here are more figures from the Resolution Foundation, showing how the wage squeeze will intensify in the run-up to Christmas.

A handy breakdown of the UK labour market:

Unemployment: the key charts

This graph shows how UK unemployment fell to 4.3% in the last quarter.

There are now 1.44 million unemployed people in the UK, down 215,000 in the last year.

The jobless rate hasn’t been lower since since Harold Wilson was prime minister.

The UK jobless rate

This chart shows how wage growth slowed at the start of this year, and hasn’t recovered strongly since.

UK earnings growth

An extra 420,000 jobs have been created in the last year -- this chart shows the key changes:

UK job creation

Britain’s bosses (the men and women with their hands on the purse strings) argue that productivity needs to rise so they can deliver wage increases.

Matthew Percival, CBI Head of Employment, says the government can, and must, help:

“Persistently weak productivity, coupled with falling real wages, continues to hit living standards, underlining the need for the Chancellor to bold in his Budget.

“Delivering urgent progress on large and small infrastructure projects, addressing underfunding in education and providing practical support for innovators are all steps the Government can take as part of a meaningful Industrial Strategy to boost productivity, the only sustainable route to improving people’s pay.”

Updated

Resolution: Average pay is back at 2006 levels

The Resolution Foundation have spotted that average earnings (adjusted for inflation) are no higher than they were back in February 2006, thanks to this latest slump in real wages.

Stephen Clarke, their economic analyst, explains:

“Today’s figures confirm the big picture trend that the UK labour market is great at creating jobs, but terrible at raising people’s pay.

“The scale of the pay squeeze over the last decade is so vast that people today are earning no more than they did back in February 2006, despite the economy being 4.4 per cent bigger per person since then.”

Britons would need a £15 per week pay rise to get back to the levels before the financial crisis.

Geraint Johnes, professor of Economics at Lancaster University Management School, has spotted that workers in the financial sector are getting decent enough pay rises....

The 3 month average measure of total pay growth indicates that earnings have risen by 2.2% over the last year. This represents no change on the previous month. There has been some acceleration in pay in the financial and business services (where pay growth is now 2.7%, or, on the less reliable single-month measure, 3.1%).

But in many industries – including the public sector, manufacturing, construction and distribution – pay growth is still below 2%. This does not suggest that it is yet time for the Bank of England to be hiking interest rates.”

Jeremy Cook, Chief Economist at WorldFirst, fears that UK unemployment will soon start to rise.

He argues that the wage squeeze means consumers will spend less in the shops, hitting profits and forcing firms to lay off staff (creating something of a vicious circle...)

He writes:

“The story of the labour market remains the same: more people earning weaker wages. These figures do nothing to change our belief that a lack of real wage gains are going to continue to impinge on the ability of consumers to remain the driving force of UK growth.

“The pace of price increases is at a near-term high and the next few months may also mark the peak of employment. UK businesses, particularly those who import from abroad or are part of global supply chains, have laboured under a slowing economy and higher costs courtesy of the falling pound. Should neither consumption or investment provide these companies – particularly retailers - with a strong Christmas, then we would expect to see the ‘good’ news of falling unemployment start to reverse as businesses react to lost margins cutting into the corporate bone.”

ING: Pay squeeze will continue

Real wages will probably keep shrinking for many more months, warns James Smith of ING:

Crunching the numbers, we don’t expect wage growth to go much above 2.1% or 2.2% before next summer.

So whilst we expect headline inflation to peak at 3.1% next month, the gap between CPI and wage growth is likely to stay fairly wide for some time to come.

Maike Currie, investment director for Personal Investing at Fidelity International, says the rise of the ‘gig’ economy, and the government’s public sector pay cap, are partly to blame for the wage squeeze.

“Another month, another fall in real household incomes. Today’s wage growth figures show our total earnings including bonuses grew at just 2.2% in the three months to August . With yesterday’s CPI figures showing inflation spiking to an eye watering 3%, the gap between our pay packets and the cost of goods and services continues to remain vast - our wages are not keeping up with the rising cost of living.

“The absence of wage growth remains the missing piece of the puzzle in the UK’s slow road to recovery - high employment should be the worker’s best friend because that’s what pushes up wages. With UK unemployment at a 45-year low, one would think that workers’ bargaining power at the wage negotiation table would improve, yet earnings growth remains elusive and the UK’s workforce is getting poorer. There are many potential reasons for this ranging from poor productivity to the squeeze on public sector pay and the rise of self-employment in the so-called ‘gig economy’.

Government: We're making 'great progress'

The employment minister, Damian Hinds, has welcomed the news that Britain’s unemployment rate remains at a 42-year low, with 32.10 million people in work (up 317,000 in the last year.).

Hinds says:

“Our economy is helping to create full time, permanent jobs which are giving people across the UK the chance of securing a reliable income.

“We’ve boosted the income for people on the lowest pay by increasing the National Living Wage and delivered the fastest pay rise for the lowest earners in 20 years.

“That’s great progress and we’re determined to help more people flourish in the world of work.

“For example we’ve launched our new returnship programme to help more women get into good jobs after taking time out, and to keep their career progressing.”

Andy Bruce of Reuters has spotted that workers in the hospitality industry are suffering a sharp pay squeeze:

Wages have lagged behind prices for months

British workers have now suffered six months of falling real wages, as this chart shows:

UK wages (in blue) are not keeping up with inflation (in yellow)
UK wages (in blue) are not keeping up with inflation (in yellow) Photograph: ONS

With inflation now at 3%, a 2.1% per year pay rise simply isn’t enough, says the TUC’s general secretary Frances O’Grady:

“Pay packets are taking a hammering. This is the sixth month in a row that prices have risen faster than wages.

“Britain desperately needs a pay rise. Working people are earning less today (in real-terms) than a decade ago.

“The Chancellor must help struggling families when he gives his Budget next month. This means ditching the artificial pay restrictions on nurses, midwives and other public sector workers. And investing in jobs that people can live on.”

UK JOBS DATA RELEASED

Breaking! Wage growth across the UK is still lagging behind inflation, even though the unemployment rate remains at its lowest level in 42-years.

Average earnings, excluding bonuses, rose by 2.1% per year in the three months to August. That’s down from 2.2% a month ago.

Including bonuses, wages rose by 2.2% - matching last month’s figures.

That means that real wages are still shrinking -- inflation was 2.6% in July (the mid-point of the quarter), and jumped to 3% in September.

The Office for National Statistics also reports that Britain’s unemployment rate remained at 4.3%, the lowest since 1975, thanks to another drop in the number of people out of work.

Here are the key points from today’s Labour Market report:

  • The unemployment rate was 4.3% in the three months to August 2017, the joint lowest since 1975.
  • There were 94,000 more people in work compared with the three months to May 2017, out of which 78,000 were women.
  • The inactivity rate was 21.4%, down slightly when compared with the previous three months.
  • In real terms, average weekly earnings fell by 0.4% on the previous year (excluding bonuses) and by 0.3% (including bonuses).
  • In the three months to June 2017 (the latest available period), the probability of remaining in employment, for those in work, was 97.3%, the highest comparable rate since 1997.

More to follow!

Updated

Over in Frankfurt, ECB president Mario Draghi is making another push for ‘structural reforms’ in the eurozone.

Draghi’s arguing (once again) that political leaders have a ‘window of opportunity’ to reform their economies, thanks to the eurozone’s current record low interest rates and QE programme.

Usually, these talks focus on labour market reforms - which can be code for making it easier to hire and fire staff. Draghi, though, is arguing for wider reforms to the way businesses work -- and blasting ‘vested interests’ who are holding things back.

Unlike what happened in the years even before the crisis, labour market reforms must be preceded – or least accompanied by – product market reforms, otherwise wage adjustments will not be fully passed on to prices. Instead, profit mark-ups will rise and the purchasing power of households will fall, thereby worsening the economic conditions of consumers and aggravating any recession.

During the crisis, because of powerful vested interests, labour market reforms were not accompanied by product market reforms in some countries, and so wages fell and prices did not adjust in tandem.

A Foxtons estate agent sign.

We have fresh evidence that London’s property market is cooling, from estate agent Foxtons.

Foxtons has told the City that conditions remained “challenging’ in the last quarter Sales in July to September dropped to £10.3m, from £12.3m a year ago.

Rob Holdsworth of the Resolution Foundation tweets:

Today’s average weekly earnings figures will be ‘key’ for the markets today, says Marc Ostwald of ADM Investor Services:

No change is seen in headline terms at a still very lowly 2.1% y/y, while the ‘core’ ex-Bonus measure is forecast to dip to 2.0% from 2.1%.

This will leave real earnings deep in negative territory, leaving plenty of room for doubt on whether wages are turning or have turned a corner as some MPC members have claimed, and certainly beg the question on the need for, or the wisdom of a rate hike.

This chart from economist Rupert Seggins shows how UK real wages have been shrinking for several months.

Today’s earnings data will show show that trend continuing.

The agenda: UK jobs report coming up

The Jaguar Land Rover factor in Solihull, England.
The Jaguar Land Rover factor in Solihull, England. Photograph: Leon Neal/Getty Images

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

Today we’ll be looking at Britain’s jobs market, and asking why people aren’t being paid more when employment is at record levels.

The latest labour market statistics, due this morning, will probably confirm that headline employment is at record levels, but that pay is still not keeping up with inflation.

City experts predict that that headline unemployment rate remained at just 4.3% in the three months to August. That would be the joint-lowest in 42 years, as the labour market holds up well in the face of Brexit uncertainty.

But wage growth will probably remain worryingly weak, at around 2.1% (possibly falling to 2.0% per year if you strip out bonuses). That would mean another fall in real wages, as inflation jumped to 3% yesterday.

This is puzzling economists (in theory, you’d expect wages to rise once labour becomes scarce). But in the world of the Gig Economy, many workers are actually facing uncertain hours, poor conditions and weak wage growth.

It all feeds into the wider conundrum of Britain’s weak productivity, and whether the country can actually handle a rise in interest rates.

Today’s figures will be closely monitored by economists, business leaders, and investors.

Craig Erlam, Senior Market Analyst at OANDA, says:

Once again though, the unemployment data is expected to paint one picture with the rate remaining at 4.3% while average earnings paints an entirely different one, as wages rise by only 2.1%.

Negative earnings growth is one of the factors that is likely to weigh on the economy going forward and makes the BoE’s decision on interest rates all the more difficult.

Also coming up today

Consumer good giant Reckitt Benckiser, chemicals and paint maker Akzo Nobel, and London estate agent Foxtons are reporting results.

Mining giant Rio Tinto is in the spotlight today. Former CEO Tom Albanese and ex-CFO Guy Elliott have been charged with fraud by US officials, over coal assets in Mozambique which were bought for $3.7bn and later sold for just $50m.

Albanese and Elliott are accused of inflating the value of the assets. Both men deny any wrongdoing. More on this shortly....

Investors will be keeping an eye on China, as the Chinese party congress begins. President Xi got the ball rolling by hailing the dawn of a “new era” of Chinese politics and power.

In a speech lasting over three hours, Xi declared:

“This is a new historic juncture in China’s development.

“The Chinese nation ... has stood up, grown rich, and become strong - and it now embraces the brilliant prospects of rejuvenation ... It will be an era that sees China moving closer to centre stage and making greater contributions to mankind.”

Here’s the agenda:

  • 9.10am BST: European Central Bank president Mario Draghi gives a speech in Frankfurt. It’s on “Structural reforms in the euro area”, one of Draghi’s favourite subjects.
  • 9.30am BST: UK labour market report
  • 1.30pm BST: US housing data for September. It’ll show how many building permits were issued, and how many new construction projects began

Updated

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