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Jobs market still booming - but pay is now starting to fall

·3-min read
Call for plan: TUC General Secretary Frances O’Grady says ministers must step in to get real wages rising across the public and private sectors (PA)
Call for plan: TUC General Secretary Frances O’Grady says ministers must step in to get real wages rising across the public and private sectors (PA)

Pay is falling for the first time since the summer as inflation bites, suggesting the Bank of England might have to move faster to raise interest rates.

While the jobs market remains healthy, the spectre of rising prices could lead to a cost of living squeeze even worse than experts have so far predicted.

In December last year there were 29.5 million UK people in work, up 184,000 on November.

That is up 409,000 on the pre-pandemic level of February 2020. The UK employment rates increased by 0.2 percentage points. Unemployment is down a little at 4.1%.

But pay rises are running at 4.2% a year, less than inflation which is at 5.1%.

Borrowing costs could jump as soon as February.

ONS director of economic statistics Darren Morgan said:

“The number of employees on payrolls continued to grow strongly in December, with the total now well above pre-pandemic levels.

“New survey figures show that in the three months to November, the unemployment rate fell back almost to where it was before COVID-19 hit, and those reporting they’d recently been made redundant fell to their lowest since records began more than a quarter of a century ago.

“However, while job vacancies reached a new high in the last quarter of 2021, they are now growing more slowly than they were last summer.

“Following recent rises in inflation, in November real wages fell on the year for the first time since July 2020.”

That’s a potential headache for Chancellor Rishi Sunak. Polls suggest he is favourite to take over from Boris Johnson should the PM be forced out or stand down.

The Bank of England put rates up from record lows of 0.1% to 0.25% in December. It could raise rates three more times this year, City economists predict.

TUC General Secretary Frances O’Grady said:

“While it’s good to see employment continuing to rise, on pay it’s the same story of a squeeze on workers.

“Working people deserve a decent standard of living and a wage they can raise a family on. But instead, following the worse pay squeeze for two centuries, real pay is falling, and they now face a cost-of-living crisis.

“We urgently need to get pay packets rising across the economy – or too many families will have to choose between paying soaring bills or putting food on the table.

Chancellor of the Exchequer, Rishi Sunak said:

“Today’s figures are proof that the jobs market is thriving, with employee numbers rising to record levels, and redundancy notifications at their lowest levels since 2006 in December.

“From traineeships for young people to Sector Based Work Academies for those switching careers, our Plan for Jobs is continuing to create opportunity for all.”

Jack Kennedy, UK economist at the global job site Indeed, said: “Those workers whose skills are in demand have every incentive to seek higher pay, in order to ride out the cost of living squeeze with energy prices set to soar and tax hikes looming.”

Capital Economics said: “The labour market appears to have remained tight both after the end of the furlough scheme and the start of the Omicron wave, which supports our view that interest rates will be raised from 0.25% to 0.50% on 3rd February.”

Inflation is likely to hit 6% by the spring, when energy bills are expected to rise sharply.

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