ONS data shows the employment rate has reached its highest ever level since records began in 1971, at 74.2 percent for the first three months of the year. However wage growth continues to plod along below its long-term trend, with average wages rising by 2 percent (including bonuses) over the last year. The unemployment rate remained unchanged at 5.1 percent.
‘The UK’s labour market is a bit of a curate’s egg, with high employment on the one hand and low wage growth on the other. Wages may have been supressed by the government’s auto-enrolment pension reforms over the last few years, which have meant employers have had to pay into retirement schemes for their staff, potentially encouraging them to dip into the wage bill to fund this extra spending.
The new National Living Wage also adds to the wage growth conundrum. In theory this should lead to higher wages all round, but a recent CIPD survey showed that employers were looking to help settle the additional costs of the higher minimum wage by limiting wage increases for better paid workers. The National Living Wage came into effect in April, and so will officially start to feed into the labour market statistics from the next ONS release in June. One explanation for the high employment rate is that changes in retirement age are meaning fewer women are retiring between 60 and 65.
A further drop in employment today would have added weight to the hypothesis that businesses are delaying decisions about hiring and investment until after next month’s EU vote. Today’s figures will therefore come as something of a relief on this front. Recent economic data releases had painted a worsening picture of the UK economy, with a number of headwinds in evidence. Last week’s figures showed UK industry slipped back into recession for the third time in eight years, and the sector is acting as a drag on the economy as a whole. Respected think-tank NIESR said last week that the UK economy lost momentum in the three months to April, citing uncertainty over the EU referendum as a cause of the slowdown.
Nevertheless, the overall picture is that the UK labour market remains in reasonable health, with unemployment remaining at a decade low of 5.1 percent. The total number of people in work rose by 44,000 in the last three months, while the number of people claiming unemployment benefit fell unexpectedly to 738,000. Low wage growth does mean there is little inflationary pressure coming from the labour market, which in turn should allow monetary policy to remain supportive.’
