17 May 2022
If you are covering the latest UK labour market statistics, please see the following comment from Paul Craig, portfolio manager at Quilter Investors:
“Today’s figures show that employees received another average total pay increase of 4.2% in January to March 2022 excluding bonuses. While a relatively small increase, it will concern policymakers trying to contain spiralling wage growth and inflation. We await tomorrow’s UK inflation update however it is not inconceivable that inflation will exceed 10 per cent this year, meaning a significant loss of purchasing power for many people and putting yet further pressure on wages to rise faster.
“During yesterday’s Treasury Select Committee grilling, Andrew Bailey painted a sobering picture of increasing prices and the income shock that many will face in the coming months. It’s clear the cost of living crisis will no longer be a mere ‘pinch’ on the UK’s working population, but a heavy burden that will be increasingly difficult to lift without wage inflation.
“The unemployment rate has continued to fall, down by a further 0.3 percentage points to 3.7% on the quarter. For the first time since records began, there are now fewer unemployed people than job vacancies. While on the face of it such low unemployment may appear to be a positive, it is likely partially as a result of a continued return to the workforce in order to help make ends meet given the current cost of living crisis. When combined with the high demand for workers, illustrated by the record high 1,295,000 job vacancies seen in February to April, the labour market is increasingly tightening.
“Growth in average total pay excluding bonuses was 4.2% in January to March, while growth including bonuses was 7% during the same timeframe. Such a considerable increase in bonus payments points heavily towards companies seeking ways to support their workers through the crisis while avoiding committing to inflation-busting pay rises. While that may be a welcome short-term solution for employees, if inflation continues to push wages higher as expected, it could result in an even more challenging situation should wages spiral in the longer term.
“What’s more, economic growth is slowing which further complicates the Bank of England’s task at hand. The lifting of Covid restrictions is leading many Brits to spend their income abroad and puts the spotlight back onto Brexit, as well as the slow progress in negotiating beneficial trade deals. The U.K. may have recovered from Covid, but it has caught a more common cold.”
