It is more of the same in UK labour market data this month. A story worth telling, however, in light of the Bank of England’s next meeting in November. Here are 7 highlights of the latest employment and pay data.
1. Labour market momentum remained intact
The story of the UK labour market remained unchanged this quarter:
The number of people in work increased by 94,000 in the three months between June and August compared with the previous three-month period
The employment rate came in at 75.1%, a shade lower than July’s record high of 75.3%
The number of unemployed people continued to drift lower, falling by 13,000 in the three months to August
The unemployment rate was unchanged at 4.3% in the three months to August - the joint lowest since 1975
2. There seems to be no clouds in the horizon
The number of vacancies continue to edge higher, with 783,000 unfilled positions reported in the three months between July and September. There are currently less than two unemployed people (actively seeking work) for each vacancy – 1.9 exactly.
The number of vacancies is also at a very high level in manufacturing, with 50,000 unfilled positions in the sector. This chimes with our latest Manufacturing Outlook where employment intentions in manufacturing stood near record highs.
Moreover, people in work have the highest probability of remaining in employment since the series began in 1997 (97.3% in the three months to June according to the ONS).
3. But wage squeeze continues
This month saw another negative growth in real earnings. Growth in average weekly earnings (total pay) stood at 2.2% in the three months between June and August – in line with numbers reported since the start of the year.
In the meantime, consumer price inflation continued its ascendance, reaching 3% in the year to September. As a result, real pay was down 0.3% in the three months to August – falling for the fifth consecutive month.
4. Manufacturing pay growth continue to underperform the rest of the economy
The wage squeeze was even more pronounced in manufacturing. Average weekly earnings in manufacturing increased by 1.6% in the three months between June and August. Although this marks a timid acceleration over the past couple of months, manufacturing pay growth continue to drift below that of the economy as a whole.
5. Subdued pay growth in manufacturing is also apparent in EEF’s Pay Bulletin
The latest EEF Pay survey, including 33 settlements covering approx. 5,000 employees in manufacturing, showed the average pay settlement in the three months between July and September at 2.1%, down from last quarter’s average settlement of 2.4%. This means that the timid acceleration in EEF's average pay settlement that was apparent last April was short lived: this was rather a reflection of the increase in the National Living Wage which went from £7.20 to £7.50 an hour for 25-year-old workers in April.
The survey also highlighted that one fifth of settlements negotiated over the summer were either deferred or resulted in a pay freeze. This is another explanation of the overall weak numbers of pay settlement average in the past three months. Although caution is warranted due to the low number of settlements in our survey, the trend could still indicate that uncertainty about the UK economic outlook is weighing on manufacturers' willingness to offer higher pay rises.
Excluding pay freezes and deferrals, the majority of settlements were agreed between 2% and 3% - and this share has been increasing over the past few months. On the other hand, settlements at or above 3% (i.e. ahead of the inflation rate) remained few and far between.
6. The trend is likely to persist in the coming months
We have previously highlighted (here, and here, and here…) that upward pressures on pay were high and increasing. The surge in inflation, the rise in the NLW, the improvement in firms’ profitability and the buoyant demand outlook are all pointing towards a stronger momentum in pay growth across manufacturing.
This has not happened so far, however. And for a number of reasons: the subdued pace in productivity, the broken relationship between labour shortages and wage growth, and Brexit wobbles and other politics-related uncertainty meaning manufacturers are cautious when it comes to offering pay rises.
These factors are likely to persist in the coming months. Brexit wobbles will only exacerbate manufacturers’ reluctance to increase pay going forward. Most importantly, productivity growth is unlikely to accelerate given the uncertain outlook for investment. EEF’s Investment Monitor – to be published on Monday next week – will tell you why.
7. What does this mean for the Bank of England?
On the positive side, today’s data are another sign of the UK’s labour market resilience. On the negative side however, the hit to consumers’ pockets remained unchanged with inflation soaring to 3% in September and wages nowhere near the pace expected by the Bank of England. This raises the chances of an interest rate hike at the MPC’s next meeting in November.