UK unemployment has held at a 10-year low and wage growth has edged up, according to official figures that provide a small, pre-budget boost for George Osborne.
Average weekly earnings for employees rose 2.1% in the three months to January compared with a year earlier, the Office for National Statistics (ONS) said. That was faster than the 2% growth rate in the previous three months. It also beat economists’ forecasts for another 2% reading in a Reuters poll.
The unemployment rate was 5.1%, compared with 5.7% a year earlier.
But pay growth is still below pre-crisis levels and has remained sluggish despite other signs of improvement in the UK labour market, where employment is at a record high of 31.4 million.
Economists and the ONS cautioned that this latest improvement in wage growth was only modest.
Nick Palmer, an ONS statistician, said: “Once again the latest quarterly figures show continuing high employment levels but no significant pick-up in earnings growth.”
The Bank of England has floated several possible explanations for low pay growth, including: the number of hours worked per person per week may have started to decline; employment growth has been skewed towards lower paid jobs; or that the low level of headline inflation may be leading to less generous pay rises.
Slow wage growth has hit income tax receipts for the exchequer and knocked the Treasury’s deficit-reduction plans off course this year. Against the backdrop of shaky global economy, the chancellor is expected to announce fresh spending cuts in Wednesday’s budget to keep to his target to get public finances in surplus by the end of the decade.
Pay growth is still well above inflation, which has hovered close to zero for the past year. This means pay is rising for workers in real terms, providing a welcome boost after years of sub-inflation pay growth after the financial crisis.
With inflation so low, however, the absence of any significant recovery in pay growth pointed to “a worrying long-term trend of weaker pay settlements”, said Laura Gardiner at the Resolution Foundation thinktank.
She added: “Weak earnings growth, coupled with the ratcheting up of the personal tax allowance, are lowering tax receipts and putting more pressure on the public finances.
“Securing stronger pay growth through productivity enhancing policy measures will be a key test of today’s budget if it is to have a significant legacy on the labour market.”
The TUC generalsecretary Frances O’Grady echoed calls for more focus on closing Britain’s stubbornly wide productivity gap, which has left it lagging behind other big economies.
O’Grady said: “Despite continued jobs growth, a full recovery in the value of wages is still years away. Average weekly earnings are still worth £40 a week less than before the crash and pay growth remains too slow.”
But Ian Stewart, the chief economist at Deloitte, said the labour market figures were generally helpful to the chancellor as he prepares to give his eighth budget. “A better than expected drop in unemployment hands the chancellor some much needed good news on budget day,” said Stewart.
He added: “Despite global growth fears, the jobs market remains a standout success for the UK with record employment rates and more people in work than ever, even with a shrinking public sector.”
Alan Clarke, an economist at Scotiabank, was also optimistic that wage growth may start rising again, boosted by the National Living Wage that Osborne announced last summer. The new minimum pay level for over-25s takes effect in April.
Clarke said: “It seems that the soft patch for wages late last year was a blip and the recent run of better data is the new norm. Maybe it is an early feeding in of the National Living Wage.”
The Bank of England is unlikely to be worried by the small pick-up in wage growth. The latest figures also do little to change expectations that interest rates will stay at their record low of 0.5% throughout this year, said Howard Archer, an economist at the consultancy IHS Global Insight. Even taking January pay growth alone, as opposed to the ONS’ preferred three-month measure, there appeared to be little pressure from wages of overall inflation in the economy.
Archer said: “Earnings growth at 2.5% in January itself remains below the level (at least 3.0%) that the Bank of England believes is consistently needed to get consumer price inflation up towards its 2.0% target level,.
“Earnings growth is also still at a muted level that is below what the chancellor needs to meet his tax receipt targets.”
The latest labour market data also included an update on public sector employment and underscored the effects of government spending cuts. Total UK public sector employment was 5.35 million in December. That was 3,000 higher than September 2015 but 50,000 lower than December 2014.
Employment in UK local government, at 2.23 million, was 15,000 lower than September 2015 and the lowest since records began in 1999.
Employment in UK central government, at 2.95 million, was 26,000 higher than in September 2015.
This article was written by Katie Allen, for theguardian.com on Wednesday 16th March 2016 11.30 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010