Yahoo Finance UK unemployment rate rises to 3.6% as real wages lag behind inflation
Workers in the UK saw regular pay jump 5.7%, the strongest growth seen outside the pandemic period, but real wages are still falling as inflation soars and unemployment hits 3.6%.
Total pay, including bonuses, rose by 6% per year in July-September, while regular pay rose by 5.7%, up from 5.4%, according to the Office for National Statistics (ONS).
The UK’s unemployment rate has also risen, amid fears that a recession is looming on the horizon and inflation rose to 10.1% in September.
The rate of unemployment stood at 3.6% in the three months to September, up from 3.5% in the three months to August.
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It came as more people dropped out of the workforce, with a hike in the proportion of people neither looking for work nor working.
Darren Morgan, head of labour and economic statistics at the ONS, pointed to a change in demographics that was driving the fall in number of economically inactive people.
“The proportion of people neither working nor looking for work has risen again,” he said.
“Since the onset of the pandemic, this shift has largely been caused by older workers leaving the labour market altogether, but in the most recent quarter the main contribution has actually come from younger groups,” he added.
More and more businesses are holding back on recruitment as the number of job vacancies fell for a fourth straight month.
The number of job vacancies dropped to 1.225 million in August to October 2022, down 46,000 in May to July 2022.
Headline indicators for the UK labour market for July to September 2022 show that:
▪️ employment was 75.5%
▪️ unemployment was 3.6%
▪️ economic inactivity was 21.6%
➡️ https://t.co/QM92jLpXGf pic.twitter.com/TNSFFUG1w6— Office for National Statistics (ONS) (@ONS) November 15, 2022
Over half a million working days were lost to strikes in August and September – the highest two-month total in more than a decade, the ONS also revealed.
Chancellor Jeremy Hunt said that tackling inflation was his “absolute priority” as he prepares to outline a raft of expected tax hikes and spending cuts in this week’s delayed autumn statement.
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“Tackling inflation is my absolute priority and that guides the difficult decisions on tax and spending we will make on Thursday. Restoring stability and getting debt falling is our only option to reduce inflation and limit interest rate rises,” Hunt said.
Wages aren’t keeping up with prices but public sector workers are being worst hit by the real pay squeeze.
Regular pay in the public sector rose by 2.2% in the last year, lagging far behind the private sector where pay has risen by 6.6%.
That is the largest difference between the private sector and public sector on record.
Victoria Scholar, head of investment at Interactive Investor, said the figures show signs of an economic slowdown.
“We are beginning to see tentative signs of an economic slowdown come through in the labour market figures now with job vacancies retreating from the highs as businesses make cutbacks and reduce hiring and with the unemployment rate surpassing analysts’ expectations.
"And although wages are rising sharply, they are still falling short of inflation, representing a real pay cut both in the private and public sector,” she said.
“No doubt Jeremy Hunt will claim both the low unemployment rate and high wage growth as victories for the government when he delivers his autumn statement on Thursday.
“But underneath the surface, the picture is less rosy with inflation still eroding real pay and with a major worker shortage that is adding to the inflationary backdrop and making the labour market appear stronger than it really is,” she added.
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Richard Carter, head of fixed interest research at Quilter Cheviot, warned that the UK jobs market will come under more pressure as winter draws in and businesses are confronted with soaring energy bills.
“In real terms, total pay fell by 2.6% and regular pay fell by 2.7%. This remains one of the largest falls in pay since 2001,” he said.
“Although there was growth in average pay this growth is totally eclipsed by the inflation we are experiencing, meaning that people’s pay packets simply will not stretch so far.
“Although the UK is not officially in recession it looks almost certain that we are heading for one,” he added.
More timely data showed the number of payrolled workers lifted 74,000 or 0.2% between September and October to 29.8 million, but these figures are subject to revision.
The wider labour force survey figures show that the number of Britons in unemployment fell by 69,000 to 1.2 million between the second and third quarters, but that the number of people in employment also dropped by 52,000 to 32.7 million.
Economic inactivity increased by 0.2 percentage points quarter on quarter to 21.6%, driven by those aged 16-24 and 35-49 years.
Rishi Sunak said inflation is the “enemy we have to face down” when asked about rise in the unemployment rate.
The prime minister told ITV in Bali, where he is attending the G20 summit: “I think what today’s figures show is that the enemy we have to face down is inflation.
“That’s what’s making people poorer, that’s what’s driving up the cost of living and everyone’s bills that they’re opening every week, every month.
“I want to make sure that we get a grip of inflation, reduce it, and that’s why the chancellor’s statement is so important, because it will put our public finances on a sustainable trajectory which will help us grip inflation, it will help us limit the increase in mortgage rates.
“And that’s why we need to do what we’re going to do.”
The prime minister was at pains to point out that inflation is a global challenge, saying: “That’s very much the conversation we’re having here at the G20.”
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