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UK wage growth picks up to 11-year high

Overhead shot of office workers at a table Image copyright Getty Images

Wage growth in the UK picked up to 3.9% in the year to June, the highest rate for 11 years, according to the Office for National Statistics (ONS).

However, the unemployment rate from April to June showed a slight rise.

The employment rate was estimated at 76.1%, the joint highest since comparative records began in 1971.

ONS deputy head of labour market statistics Matt Hughes said that most of the growth this year was because more women were in employment.

Figures released last week showed the economy shrank 0.2% in the second quarter, the first contraction since 2012.

Real wages

Wages have been increasing at a faster pace than inflation since March 2018.

The 3.9% increase in regular pay – which excludes bonuses – was up from last month’s figure of 3.6%. Part of the reason for the rise was the unusual timing of annual pay rises for public health workers last year, when a larger-than-usual increase was deferred until July.

In real terms (after adjusting for inflation), regular pay is estimated to have increased by 1.9%.

Mr Hughes said: “Excluding bonuses, real wages are growing at their fastest in nearly four years, but pay levels still have not returned to their pre-downturn peak.”

The employment rate for women was 72.1% – the highest on record – and for men was 80.1%, slightly lower than the previous three-month period. The unemployment rate edged up slightly to 3.9%.

Overall, a record high of 32.81 million people were in employment – 425,000 more than a year earlier, largely because of more people working full-time.

Mr Hughes added: “Employment continues to increase, with three-quarters of this year’s growth being due to more women working. However, the number of vacancies has been falling for six months, with fewer now than there were this time last year.”

Chancellor Sajid Javid said: “Every person deserves the chance to succeed and provide for their families through a steady income.

“Today’s figures are another sign that despite the challenges across the global economy, the fundamentals of the British economy are strong as we prepare to leave the EU.”

Rate moves

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the figures should silence any calls for a cut in interest rates.

“The labour market tends to lag developments in the wider economy,” he said. “Firms, however, have lived with high levels of economic uncertainty for the best part of a year, and still want to fill new positions.”

He added that the Bank of England has in the past used the annualised rate of growth in wages over three-month periods to back interest rate increases.

But he said: “In the event that Brexit is delayed further – still our base case – or an agreement is reached in October and the economy starts to rebuild a little momentum, the MPC (Monetary Policy Committee) will need to move in short order to raise the bank rate again.”

Tej Parikh, chief economist at the Institute of Directors, said that while the jobs market remained “a source of strength for the UK economy”, it may be reaching its peak.

“With investment in machinery and technology often deemed too risky right now, businesses have sought to bring on board more staff to help lift output,” he said.

“But as more workers have been snapped up, firms have found it harder to fill their openings. While competition has pushed up salaries, thin margins and low productivity may set a ceiling for pay growth. Although vacancies remain high by historic standards, the number has been dropping since the start of the year.”

Ian Stewart, chief economist at Deloitte, said: “The days of sharply falling unemployment are behind us, but a tight labour market points to further gains in wages and spending power. Despite a second quarter decline in growth, the UK economy still has momentum.”