Unemployment falls to 48-year low

interactive investor says fall in vacancies and deceleration in wage growth paints a less rosy picture.

Commenting on the latest labour market data by the Office for National Statistics, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “UK unemployment fell to its lowest level since January 1974 in the three months to July this year. However, coupled with the substantial fall in job vacancies, the largest since the height of the pandemic, and a deceleration in wage growth, the emerging picture is less rosy.

“Also, total employment decreased slightly on the quarter and remains below its pre-pandemic level. One of the reasons why unemployment is falling while employment is slow to recover is because fewer people are in the labour market – largely because a rise in people becoming economically inactive.

“Economic inactivity for 16 to 64-year-olds increased by 0.4 percentage between May to July 2022, with long-term illness or being a student the key drivers.”

Wages

Myron Jobson says: “While pay packets are still growing faster than before the pandemic, they appear to be decelerating.

“For many workers, the painful reality is their pay packets are not stretching far enough to cover the escalating cost of living. Despite one of the tightest job markets on record, soaring inflation, which far outstrips wage growth, has led to the largest pay cuts in real terms.

“Annual growth in regular pay, excluding bonuses, fell by 2.8% in the UK after taking account of inflation over the latest three-month period to July 2022 – which is among the largest falls since comparable records began in 2001. Average total pay, including bonuses, fell by 2.6%.

“The gulf between the pay rises being handed to public sector workers, and those in the private sector is at its largest since the height of the pandemic. Average regular pay growth in the was 6% in private sector versus 2% in the public sector. The disparity in pay is likely attributed to private sector employers offering stronger bonuses to attract and retain talent. However, amid fears of a looming recession, firms might feel less inclined to raise wages.

“Looking ahead, if the red-hot inflation comes off the boil as hoped, pay rises could finally catch up to price rises. This would help improve workers’ living standards. But reining in inflation remains a tall order for policymakers.”