Pay packets are increasing at a record rate despite rising unemployment and a marked cooling of the UK’s labour market, the latest official figures shows.
The Office for National Statistics said total earnings in the three months to July 2023 were 8.5% higher than in the same period a year earlier – the highest since modern records began in 2001 other than during the exceptional conditions of the pandemic.
The ONS said the earnings figures were affected by one-off payments to NHS staff and civil servants but that real pay – adjusted for inflation – rose at an annual rate of 1.2%.
Over the same three-month period, unemployment rose by 159,000, the unemployment rate rose by 0.5 percentage points to 4.3%, employment dropped by 207,000 and the number of job vacancies dipped below the 1m level for the first time in two years.
The contrast between the strength of pay and the rest of the official labour market data will add to the Bank of England’s dilemma over whether to raise interest rates for a 15th successive time when it meets next week.
The jobs and earnings figures are one of the last vital pieces of economic news for the Bank of England before September’s decision on borrowing costs.
Threadneedle Street has been looking for evidence that the pace of pay settlements is abating but is also aware that previous increases in the cost of borrowing are having an impact on growth and employment.
Annual average earnings in the three months to July are also used to calculate the increase in pensions. Under the triple lock, the state pension rises in line with whichever is higher of earnings, prices or 2.5%.
A breakdown of the pay data showed annual earnings in the private sector grew by 7.6% in the quarter ending in July, while earnings in the public sector rose by 12.2%. Regular pay, which excludes bonuses, grew at an unchanged rate of 7.8%.
The chancellor, Jeremy Hunt, said: “It’s heartening to see the number of employees on payroll is still close to record highs and that our unemployment rate remains below many of our international peers.
“Wage growth remains high, partly reflecting one-off payments to public sector workers, but for real wages to grow sustainably we must stick to our plan to halve inflation.”
Darren Morgan, the ONS director of economic statistics, said: “Earnings in cash terms continue to increase, at a record rate outside the pandemic-affected period. Coupled with lower inflation, this means people’s real pay is no longer falling.
“Unemployment continues to increase in the latest three months. Correspondingly, employment is down, driven by falls among men and the self-employed. The proportion of people neither working or looking for a job is slightly up, with more students, as well as the long-term sick reaching yet another record.”
“Meanwhile, working days lost to strikes jumped in July, especially in education, with the health sector also still heavily affected. However, the overall number is still below what it was a few months ago.
“Job vacancies have fallen below the million mark for the first time since the summer of 2021, when the reopening of economy created huge demand for workers. However, they still remain significantly above pre-Covid levels.”
