Cost of living squeeze eases as UK regular pay rises faster than inflation

Selasa, 17 Oktober 2023

Cost of living squeeze eases as UK regular pay rises faster than inflation – business live - The Guardian

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UK regular pay is rising faster than inflation for the first time in almost two years this summer, bringing some relief in the cost of living squeeze.

Regular real pay (adjusted for inflation) rose by 0.7%, year-on-year, in the June-August quarter, new figures from the Office for National Statistics shows.

Regular pay was up by 7.8% in the quarter, the same as last month, but real pay has turned positive, thanks to the fall in inflation last summer.

Real regular pay in the previous period, May-July, has been revised up to 0.1% growth, from an initial reading of 0% – the first positive reading since October 2021.

Total pay (including bonuses) rose by 8.1% in June to August 2023, lifted by payments to NHS and civil service staff this summer (although that’s down from 8.5% in May-July).

Rising wages are clearly a boost to struggling households, after a two-year cost of living squeeze. But it may encourage the Bank of England to keep interest rates high. Yesterday, the BoE’s chief economist, Huw Pill, singled out wage rises as an ‘outlier’ that could indicate persistent inflation pressures.

In its latest healthcheck on the UK jobs market, the ONS also reports that public sector pay growth was the faster in over 20 years, but still lagged the private sector.

Here’s the details:

Annual average regular pay growth for the public sector was 6.8% in June to August 2023 and is the highest regular annual growth rate since comparable records began in 2001; for the private sector this was 8.0% and among the largest annual growth rates seen outside of the coronavirus (COVID-19) pandemic period.
The finance and business services sector saw the largest annual regular growth rate at 9.6%, followed by the manufacturing sector at 8.0%; this is one of the highest annual regular growth rates for the manufacturing sector since comparable records began in 2001.

Some of the numbers we’d normally get today, including the jobless rate, has been delayed by a week, though. Data from the ONS’ Labour Force Survey (LFS), used to calculate Britain’s unemployment rate, has been pushed back to next Tuesday (October 24th), due to falling response rates to the LFS survey.

But there are worrying signals from the economy this morning, with engineering firm Rolls-Royce confirming that it plans to cut up to 2,500 jobs across its business.

The agenda

7am BST: UK earnings and employment data
10am BST: ZEW eurozone economic sentiment index
10.15am BST: Treasury Committee inquiry hearing into sexism and misogyny in the City
1.30pm BST: US retail sales for September
3pm BST: NAHB survey of US housing market

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More industrial bad news: Swedish bearings maker SKF is to close its factory in Luton in Britain, which employs about 300 people.

SKF proposed closing the factory at the end of May, after announcing that the company was consolidating its manufacturing in Europe. And following a consultation process with employees and union representatives, SKF has confirmed the site will close.

The factory will be closed for production by the end of 2024.

David Johansson, President for Industrial Region Europe Middle East and Africa at SKF, says:

“Following a comprehensive consultation process, the parties have confirmed that no viable alternative to closing the Luton factory has been found. As we move forward, we are committed to ensuring full support and assistance is provided to all those affected.

On behalf of the full management team of SKF, I want to thank all our employees in Luton for their many years of commitment and dedication.”

Rolls-Royce has confirmed this morning that it plans to cut up to 2,500 jobs as part of a move to a simpler organisation “that is fit for the future”.

The jet engine manufacturer is proposing to cut between 2,000 and 2,500 roles worldwide (as reported last night) with the UK expected to be affected. This amounts to about 6% of its 42,000-strong workforce, half of which are in the UK. It has 11,000 employees in Germany and 5,500 in the US.

Tufan Erginbilgiç, a former BP executive who took over Rolls-Royce in January, said: “We are building a Rolls-Royce that is fit for the future. That means a more streamlined and efficient organisation that will deliver for our customers, partners and shareholders.

“This is another step on our multi-year transformation journey to build a high performing, competitive, resilient and growing Rolls-Royce.”

Here’s the full story:

Unions are warning that the rise in real earnings is only a small respite for employees, after a long pay squeeze.

Unite general secretary, Sharon Graham, warns that workers still deserve fair pay rises:

“The real value of wages has been eroded over more than a decade. Data suggesting pay rises have finally caught up with corrosive inflation will give hard-working families some small respite from the damage that has been wrought on household incomes by years of economic incompetence and mismanagement.

“If boardrooms toughen their stance towards the workforce, Unite will continue to fight for fair pay to win out over corporate profiteering.”

The TUC are concerned that employment, and vacancies, fell in the last three months.

UC General Secretary Paul Nowak says:

“The UK economy remains in a perilous position.

“This is the third month in a row that PAYE employment has fallen with vacancies also continuing to decline.

“And while average pay has finally crept above inflation – real wages are still shrinking across the public sector, retail, hospitality and construction.

“Let’s not forget - If pay packets had been growing at pre-crisis levels, workers would be on average nearly £15,000 better off.

“So for millions there will be little relief from the cost of living crisis and many will be rightly worried about their job prospects.

“The Conservatives’ economic mismanagement is costing this country dear. Britain is stagnating under their watch.”

Today’s jobs data may encourage the Bank of England to leave interest rates at their current 15-year high of 5.25% next month, rather than tightening policy further.

Emma Mogford, fund manager at Premier Miton Monthly Income Fund, says:

“With the number of employees on payroll falling and wage inflation below expectations, this gives the Bank of England more reason to pause its interest rate increases.

If we are at peak rates, then a more stable outlook for interest rates could help the economy and stock market.”

Ashley Webb of Capital Economics takes a similar view, saying:

Cooling labour market conditions appeared to start feeding through into an easing in wage growth in August. That supports our view that interest rates have peaked at 5.25%.

But as we suspect wage growth will fall only slowly, interest rates will probably stay at their peak until late in 2024.

Thomas Pugh, economist at audit, tax and consulting firm RSM UK, also predicts rates will be kept at 5.25% in November:

‘The slowing in pay growth in August suggests that the MPC will keep interest rates unchanged again at its meeting next month.

‘Indeed, total wage growth across the whole economy fell from 8.5% in July to 8.1% in August, mainly due to a drop in bonuses. But private sector wage growth excluding bonuses also ticked down to 8% from 8.1%, indicating that pay pressures are slowly starting to ease….

‘Overall, the loosening in the labour market seems to be slowly feeding through into easing pressure on wages, that should satisfy the MPC that it just needs to be patient in order to see wage growth and inflation return to more normal levels, rather than resuming rate hikes.”

If you ignore inflation, regular pay growth actually slowed in the last quarter, for the first time since January.

The 7.8% increase in average earnings (excluding bonuses) in June-August was a slowdown on the upwardly revised 7.9% in May-July, the first such fall since January.

These average earnings are being monitored by the Bank of England as it considers whether to resume raising interest rates to counter the risks from still high inflation, Reuters points out.

There are signs of “cooling labour demand” in today’s employmenr report, says Yael Selfin, Chief Economist at KPMG UK.

“The latest data indicates that some of the sharpest falls in vacancies have been in sectors which reported persistent skill shortages, including IT and finance. This may signal that the battle for talent has run its course. The overall number of vacancies in September was 314,000 (24%) down since the peak in the middle of last year.

“While the overall momentum of the economy is weak, the expected easing of inflation, coupled with earlier pay awards and the increase in the National Living Wage, should provide further improvements in consumers’ purchasing power and help alleviate the pressure on households.”

The number of people on company payrolls may have peaked this summer, as the rise in interest rates cools the economy.

The Office for National Statistics reports that payrolled employment is estimated to have fallen by 11,000 in September, following a decrease of 8,000 in August.

That left around 30.123m people on company payrolls last month – a rise of 1.2% in the last year, and 1.1m more than in February 2020.

Today’s jobs report also shows a fall in vacancies across UK firms – a sign that demand for labour is cooling.

There were 988,000 vacancies in July to September, the ONS reports, which is a fall of 43,000 compared with April to June.

The ONS says:

Vacancy numbers fell on the quarter for the 15th consecutive period in July to September 2023, down by 4.2% since April to June 2023 with vacancies falling in 14 of the 18 industry sectors.
In July to September 2023, total vacancies were down by 256,000 from the level of a year ago, although they remained 187,000 above their pre-coronavirus (COVID-19) pandemic January to March 2020 levels.