UK unemployment falls to new 43-year but wage growth stalls
UK wage growth has stalled in spite of unemployment falling to a new 43-year low of 4.0%.
Average weekly pay in the three months from April to June was up 2.4% to £518 compared to the three-month period to the end of March. This was down from the 2.5% rate reported a month ago, which economists had expected to be repeated. For the month of June alone, average weekly wage growth fell to 2.1% year-over-year from 2.5% in May.
If excluding bonuses, average weekly earnings grew 2.7% to £488 in the second quarter of the year, the Office for National Statistics revealed, which was expected by economists, though the first quarter's growth was revised up to 2.8%. For June alone, year-on-year growth in average wages not including bonuses held steady at 2.9%.
This was in spite of June's ILO unemployment rate for the three months to June dropping to 4.0% from the 4.2% reported for May and was expected to be extended, with the number of unemployed people down by 65,000 on the preceding quarter to 1.36m. Employment numbers increased by 42,000 over the three months but the employment rate remained unchanged at 75.6%.
The three-month rise in employment was down from the 197,000 in the first three months of the year and the weakest since the three months to last October. On a monthly basis, employment declined by 13,000 in June as the number of people classified as inactive increased by 90,000.
“The growth in employment is still being driven by UK nationals, with a noticeable drop over the past year in the number of workers from the so-called ‘A8’ eastern European countries in particular,” said senior ONS statistician Matt Hughes.
He said that the number of vacancies had risen to a new record high, while the unemployment rate is now at its lowest since the winter of 1974-75.
Economist Sam Tombs at Pantheon Macroeconomics observed that employment growth was losing momentum, rising 0.1% in the second quarter from 0.6% growth in the first.
"What’s more, nearly all surveys of employment intentions have weakened since the start of the year and they now collectively point to year-over-year growth in employee numbers slowing to about 0.8% by the end of the year, from 1.4% in June. Employment, therefore, likely will only keep up with the growing size of the workforce and the unemployment rate shouldn’t fall materially further before the end of this year."
Meanwhile, he pointed out that average hours among full-time employees were down 1.4% year-over-year, signalling some re-emergence of slack within the employed workforce.
Simon Harvey, analyst at Monex Europe, said the moderation in average pay "doesn’t bode well for sterling ahead of tomorrow’s inflation reading for July", with consumer price inflation expected to rise to 2.5% in July that would mean real wage growth could start to show negative readings in the coming months.
"The current multi-decade low in unemployment, which currently sits at 4.0%, is consistent with the Bank of England's projections for Q3 and the central bank is unlikely to embark on further tightening this year due to wage pressures on inflation falling. This outlook has been consistent with sterling’s price action, suggesting that this morning’s risk-on move due to stabilisation of the lira was overbought. Macroeconomic data is likely to continue to take a back seat as the lira dominates market news."
Barclays noted that the employment participation rate dipped 0.2pp to 63.6% but there was also an increase in the number of people classified as inactive, up by 90k in June and 99k 3m/3m.
"Interestingly, the breakdown shows that a large proportion of this was driven by an increase in the number of men classified as long-term sick (+39k), while the rest were split between an increase in students and the number leaving the workforce to look after family. This is maybe a temporary statistical feature that is revised away in the coming months."
On wage growth, negative base effects were part of the reason for the deceleration, with a further increase in hourly wages and a contraction of average hours worked per week.
"The slowdown in wages was driven mainly by the private sector as public sector core wages remained stable at 2.2% 3m/y, while headline wages grew slightly faster at 2.2% 3m/y compared to 2.1% 3m/y in May. Productivity in Q2 increased by 0.4% q/q offsetting the -0.4% q/q contraction in Q1."