UK faces a pay squeeze – and higher interest rates look likely
A cursory glance at the latest jobs market figures suggests the economy was in good health as the end of 2021 came into sight.
In the three months to November employment rose by 60,000 and the unemployment rate decreased by 0.4 percentage points on the quarter to 4.1%.
The redundancy rate dropped to a record low, revealing a smooth transition out of the furlough scheme and a good deal of luck for a chancellor constantly betting that the effects of the pandemic would be short-lived.
Put the unemployment and redundancy rate together and there is only a whisker of difference with the pre-pandemic level in February 2020.
Wages tell a different story. While total pay including bonuses edged up 0.4 percentage points to 4.2% on the previous month, without bonuses pay remained static. Once inflation was taken into account wages went into reverse in real terms, declining by 0.9%, even when bonuses are included.
The Resolution Foundation thinktank said this squeeze on pay was the third in a decade, after real wage falls after the financial crisis between 2011 and 2014 and in the year after the 2016 Brexit vote.
Like previous episodes, the current hit to the average worker’s standard of living is unlikely to prove short-lived as energy, food and fuel price rises eat into household finances.
It started last summer, said the thinktank’s economists, and “is likely to get deeper in the coming months with inflation forecast to peak at 6% in April, before it starts to ease in the second half of 2022”.
Rishi Sunak will comfort himself with data on PAYE earnings from HMRC for December that showed few signs that the Omicron variant had a big impact, despite concerns that its emergence would provoke a fresh wave of life-threatening sickness.
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