Any expectations that annual wage growth would fall in line with inflation were dashed as the ONS released its latest pay and labour market figures today.
Growth in annual employees’ earnings (excluding bonuses) was 5.7 percent in March to May 2024, down slightly from 6 percent for the previous period of February to April 2024.
For total earnings, including bonuses, annual growth was also 5.7 percent compared with 5.9 percent for the previous period.
When adjusted for inflation, annual wage growth was 2.5 percent in March to May 2024 and 2.2 percent for total pay. For the previous three months to April 2024, the respective figures were 2.3 percent and 2.2 percent.
James Cockett, labour market economist for the CIPD, said the main story in today’s figures is the continued cooling of the labour market as he emphasised that vacancies have now fallen every month for the last two years.
ONS estimated that there were 889,000 job vacancies in April to June 2024, representing a decrease of 30,000 or 3.3 percent from January to March 2024. Researchers said vacancies have now fallen on the quarter for 24 consecutive periods.
Recruitment premium
Cockett said: “Pay is the exception to the cooling labour market and wage increase expectations remain stubbornly high at just below 6 percent. Expectations were that nominal pay would fall in line with falling inflation, which now stands at 2 percent. Instead, the level of pay growth has been largely unchanged in the last six months.”
He continued: “The King’s speech yesterday highlighted the government’s intention to reform the apprenticeship levy as it seeks to maximise the potential of the UK workforce. A more flexible growth and skills levy can help employers train their own staff to tackle skills gaps and shortages so they are less likely to have to pay a premium for new recruits.”
ONS data also showed that the economic inactivity rate for the UK in March to May 2024 was 22.1 percent.
Cockett said: “High levels of inactivity in the labour market also remains a headache. There needs to be a joined up approach from the government to tackling this issue, including the provision of occupational health support for SMEs.”
Pension increase indicator
David Brooks, head of policy at consultancy Broadstone, said: “It now looks likely that the average earnings figure will determine the next state pension increase later in the year. This morning’s figure gives us a sense of how it is likely to rise when the calculations are finalised in just a few months.
“With average wages growing at 5.7 percent, that would amount to an extra £655 every year for those in receipt of a full state pension which would then total around £12,155 from its current rate of £11,502. The OBR forecasts that earnings are likely to fall sharply soon but that may come too late to avoid triggering yet another sizeable uplift to the state pension.”
Concerns for BoE
Greg Thwaites, research director at the Resolution Foundation, said pay packets were proving “mightily resilient” in the cooling labour market as they grew at their fastest rate outside the pandemic since 2002.
“Rising real wages are good news for workers coming out of the cost-of-living crisis. But the Bank of England will be concerned that because these are not productivity-enhanced pay rises, they could turn out to be inflation-generating ones. The high-strength pay data, and low-quality jobs data, further complicate plans to cut interest rates.”
