Yahoo Finance Brexit uncertainty makes impact on October pay growth
Pay growth took a knock in October as slowing global trade and Brexit uncertainty dented business confidence, according to a Guardian analysis of economic news over the past month.
Average wage rises dropped back to 3.6%, down from 3.8% in September and 4% in July, which economists said was likely to represent the peak in pay growth since the 2008 financial crash and was unlikely to be seen again for some time.
Employment fell at its fastest rate in four years and the inactivity rate increased as thousands of workers, most of them women, withdrew from the jobs market rather than looked for new work.
David Blanchflower, an economist and former member of the Bank of England’s monetary policy committee, said a rise in inactivity and persistent under-employment helped to explain why wages growth had started to fall.
Related: How has Brexit vote affected the UK economy? October verdict
Writing in The Guardian, he said hundreds of thousands of workers wanted to work more hours and this persistent feature of the labour market kept wages in check.
“The UK is a long way from full employment despite the unemployment rate dropping to 3.8%, which is well below the 4.5% level it achieved in the boom years between January 2000 and the start of the recession in April 2008,” he said.
“With unemployment so low, wages growth should be increasing. Instead it is going backwards. For an answer look at underemployment.”
The underemployment rate is calculated as the proportion of workers who say they are part-time but want full-time jobs, said Blanchflower, who is a professor at Dartmouth College, the US Ivy League university.
“In the most recent data, there are approximately 865,000 of them versus 1.3 million unemployed. In May 2004 the rate was 1.87% and today it is much higher at 2.64%. It turns out that elevated underemployment rate is what is keeping wage growth in check.”
Blanchflower said there was little to cheer in the rest of the economy, which had entered a period of stagnation.
To gauge the impact of Brexit on a monthly basis, the Guardian monitors eight economic indicators, along with the value of the pound and the performance of the FTSE 100.
City economists made forecasts for seven of those barometers before their release and in five cases the outcome was worse than expected. Only two areas were better than expected – inflation was lower than economists expected and house prices fell less than expected.
The Bank of England said in its quarterly health check of the UK economy that the outlook had improved following parliament’s decision to take a no-deal Brexit off the table.
However, the bank’s monetary policy committee (MPC) said it expects the level of national output – gross domestic product – over the next three years to be 1% lower than it anticipated in August.
The gloomier forecast for GDP growth persuaded two members of Threadneedle Street’s nine-strong policy body to vote for an interest rate cut.
In the first split vote on the MPC since June 2018, the Bank voted by 7-2 to keep official interest rates on hold at 0.75%, but two of the outside experts the government appointed to the committee, Jonathan Haskel and Michael Saunders, said the weakness of the economy warranted an immediate reduction.
The OECD said in its bi-annual health check of the UK economy that GDP growth will slip to 1% next year from 1.2% this year even if a no-deal Brexit is avoided.
But like most international bodies, the Paris-based thinktank dampened the mood further by arguing that Boris Johnson’s threat of a no-deal departure in December 2020 would significantly damage the economy and leave the UK more exposed to a global downturn.
Andrew Sentance, a senior adviser to the consultancy Cambridge Econometrics, wrote in the Guardian: “The evidence from the real economy over the past month suggests little change to the pattern of stagnation we have seen for most of this year.
“The UK economy has been heavily dependent on rising consumer spending over the past few years, but here we are also seeing some negative signals. Retail sales dropped back in October, though they remain more than 3% up on a year ago. The latest survey of consumer confidence is now the weakest we have seen in six years.
Sentance, who is also a former member of the BoE’s interest rate setting committee, said other information from the labour market was also downbeat.
“Some of the current uncertainty could dissipate if we see a decisive outcome from the general election. But if we end up with another hung parliament, which is entirely possible, the economic doldrums are likely to continue into next year,” he said.
