March 2017 LM Update - Real pay growth at its slowest rate for two years

Today's figures show that pay growth in the UK continues to disappoint. In the three months to January 2017, real wages (which strip out the effects of inflation) are now growing at the slowest rate for two years. This underlines the importance of increasing productivity, which remains the only sustainable route to higher wages, and therefore increased living standards.

More positively, employment once again increased over the quarter with more people moving into work. Alongside this, unemployment continues to fall and the unemployment rate is now at its joint lowest level since 1975.

Real pay growth falls to its lowest level for almost two years

Today’s data shows that pay growth in the UK remains weak:

  • Across the whole economy real regular (excl. bonuses) average pay growth (earnings stripping out growth in inflation) fell from 1.4% in the three months to December to 0.8% in the three months to January. This is the slowest rate of real pay growth since December 2014. (Exhibit 1)
  • Nominal regular pay growth in the whole economy (pay not adjusted to take account of changes in inflation) also fell slightly in the three months to January from 2.6% to 2.3%
  • Inflation is expected to rise further in the coming months from its current rate (1.8% in January), and if nominal earnings growth does not pick up over the coming months, real earnings growth is likely to fall back further. With the savings ratio already very low, this is expected to dampen consumer spending, causing overall economic growth to slow.

cbi labour market update marchEmployment levels continue to strengthen...

More positively, the statistics released today show that employment growth in the UK was strong:  

  • In the three months to January 2017, there were     31.9 million people in work in the UK, an increase on the previous quarter (+92,000) (Exhibit 2 overleaf). 
  • The employment rate for those aged 16 to 64 remains at a historic high of  74.6%, up slightly from 74.4% on the previous quarter.  
  • Increasing employment can be attributed to rises in the number of people working for a business (+17,000) and a larger increase in the number of self-employed people (+49,000). The number of people on a government supported training or employment schemes (+23,000) while unpaid family workers remained broadly unchanged (+,000).

cbi labour market update march (1)

  • While growth in self-employment outpaced growth of employees , the majority of people in employment - 26.8 million - work for a business.

cbi labour market update march (2)

  • A separate dataset on zero-hours contacts (ZHC) was also released today showing there were 905,000 people on a ZHC during October-December 2016, an increase (+101,000) on the same period a year earlier.
  • Importantly, the data also shows that 68% of people working this way do not want to work more hours than they currently are.
  • It is worth noting that in recent years, increases in the number of people reporting that they were on a ZHC was likely to have been affected by greater awareness and recognition of the term.

...with jobs growing across a range of sectors 

Newly released data looking at the number of jobs created in different sectors of the economy was also published today. 

Data on jobs is different to employment as it looks at the number of filled jobs in the economy. Employment on the other hand, is an estimate of people in work and some people have more than one job. The jobs statistics also refer to a different time period. The jobs data published today reveals that:

  • In the three months to December 2016, businesses in the administrative & support service activities and construction sectors were key drivers of jobs growth (+38,000 and +36,000 respectively). (Exhibit 3).
  • The agriculture, forestry & fishing sector (+21,000) also made a solid contribution to jobs growth in the UK.
  • In contrast, the number of jobs in the financial & insurance activities sector (-19,000) and wholesale & retail trade sector  (-12,000) fell in the final quarter of 2016. 

 cbi labour market update march (4)

The  unemployment rate falls to its lowest level since 1975...

Alongside this welcome employment growth, unemployment has also continued on its downward path: 

  • In the three months to January 2017, unemployment declined (-31,000) compared to the previous three months. As a result, 1.58 million people are now out of work and looking for work (Exhibit 4).  
  • Alongside this, the unemployment rate now stands at 4.7% compared to 4.8% in the previous quarter. This is the joint lowest rate of unemployment in the UK since 1975.

cbi labour market update march (5)…while unemployment remains broadly unchanged in most areas.
While employment was rising across the nations and regions of the UK, unemployment remained broadly unchanged. 

  • In the three months to January, the North West saw the most substantial fall in unemployment (-17,000) followed by Scotland (-16,000).  
  • Unemployment was broadly unchanged in the East Midlands and East (both -9,000), South West (-3,000), South East and Yorkshire and Humber (both 0), West Midlands and London (both +9,000), North East (+4,000), Wales and Northern Ireland (both +1,000), 

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