Wages are still ahead of inflation in both the public and private sectors, according to newly published official figures.
In real terms, pay rose 3.4% between October and December compared with the same period a year ago, after taking into account the pace of price rises.
The ONS also cautiously reported that the UK’s unemployment rate remained unchanged at 4.4%, figures that followed warnings of pre-April job cuts from many businesses concerned about paying more in National Insurance and a rise in the minimum wage.
Without taking account of inflation, the ONS said annual pay growth, excluding bonuses, was 5.9% from October to December. which was up from the previous figure of 5.6%.
Rob Morgan, Chief Investment Analyst at Charles Stanley said this uncertainty has left the country in an “economic funk of muted activity,” but that the ONS data is not necessarily reflective of this trend.
While still low by historic standards, the data needs to be taken with some caution because of collection issues, it “is probably not yet picking up what is being expressed in industry surveys. It seems likely the official unemployment rate will creep up in the coming months.
“Meanwhile, wage inflation continues to be strong for the time being at 5.9%. This shows there is still demand for workers and perhaps reflects the difficulty and cost to secure necessary skills if they are lost.
To what extent the picture changes once increases to employers’ costs takes effect in April remains to be seen. Some businesses will err towards passing on the higher costs through price increases rather than reducing headcount. This could push up services inflation but keep unemployment low despite a drop off in hiring – creating a problem for the Bank of England in its battle against price rises.”
Julia Turney, Partner and Platform and Benefits, Barnett Waddingham said: “The latest unemployment figures lay bare the tough economic reality we face. Businesses nationwide are bracing for the impact of recent policy changes, notably an impending £25 billion hike in employer National Insurance contributions starting in April.
“As a result, the CIPD reports that almost a third of employers (32%) now plan to lower their headcount through redundancies or reduced hiring, among other cost-cutting measures.
Competitive pay alone won’t help to navigate the challenges that many employers are facing
“The next few months will be critical in addressing these labour market challenges, and the Government must explore ways to help employers manage these rising costs without compromising hiring. Left unchecked, we risk a surge in further redundancies and hiring freezes – weakening the labour market and slowing our economic growth overall.”
Michael Stull, director at ManpowerGroup UK, said of the figures: “With the overall number of vacancies still in decline and another drop in payrolled employees, the hiring recession continues.”
He added: “ONS labour market data is also a lagging indicator, and work is ongoing to improve its accuracy. This means we need to take some caution with the latest readings as other sources and our own data tell us that business confidence is waning.
“Our workforce insights show that hiring is down by 36.5% year-on-year, with many employers delaying recruitment plans while employees who might otherwise be moving around or leaving the workforce for various reasons, are staying put. This comes at a time when productivity remains a critical concern.
“Competitive pay alone won’t help to navigate the challenges that many employers are facing. While the Living Wage rises from April are to be welcomed, we need a dual focus on wages and workforce capability.
“Investing in upskilling and productivity-boosting technologies will help to restore growth and confidence in the UK labour market but with national insurance payments set to rise from April alongside increasing utility costs, finding ways of improving workforce capabilities with existing resources won’t prove easy for many organisations.”
