Millions of workers are experiencing a financial squeeze as the job market faces challenges. Recent data from the Office for National Statistics shows a slowdown in average wage growth to 3.4% year-on-year from January to March. Private sector pay growth dropped to 3%, while public sector growth stood at 4.8%.
With inflation reaching 3.3% and expected to rise further due to fallout from the recent Iran conflict, experts caution that many workers may see a decrease in real-terms pay. Simultaneously, a weakening job market is making it harder for employees to negotiate for pay increases that match inflation.
Unemployment inched up to 5%, and the number of job vacancies decreased to 705,000, the lowest level since the Covid crisis. Payrolled job numbers fell by 104,000 year-on-year in March, with estimates suggesting a further decline of 210,000 in April. The claimant count for those on out-of-work benefits rose on the month but decreased on the year to an estimated 1.699 million.
Economists, including Jack Kennedy from Indeed, Suren Thiru from the Institute of Chartered Accountants in England and Wales, and Yael Selfin from KPMG, highlight the strain on the labor market due to rising costs and uncertainty. They predict a period of declining real pay for workers as inflation outpaces earnings, particularly driven by higher energy and food prices.
The Bank of England is anticipated to maintain interest rates amidst the slowdown in pay growth. Julia Diniz from the Resolution Foundation notes the challenges in the UK’s labor market, with real wage growth at zero and the potential for a fourth period of falling real-wage growth in less than two decades. Despite the economic turbulence, the UK is less likely to experience wage-price spirals similar to past geopolitical events.
The current economic climate underscores the need for caution in raising interest rates, considering the impact on workers and the broader economy.
