MNI INTERVIEW: Real Wage Growth Boost In Coming Months For UK

Real wages are set to turn positive in the coming months as inflation is likely to fall, offering a boost to consumer confidence and spending, although evidence is growing that the jobs market is cooling, Grant Fitzner, chief economist at the Office for National Statistics, told MNI.

“With nominal wage growth at these levels and headline inflation likely to fall in coming months, real earnings (using the ONS’s preferred CPIH measure of inflation) are close to turning positive,” Fitzner said, noting that it would be the first time that real pay growth is in the black since mid-2021.

That will be a boost for consumer confidence and spending in coming quarters, Fitzner added, a bright spot if the wider UK economy did start to slow.

VACANCIES SLOW

On wider labour market trends, Fitzner said there were signs it was starting to ease, with some of the trends in place for almost a year.

Fitzner pointed too vacancies being well off their post-pandemic peak although still higher than before the pandemic. In the latest ONS data, published Thursday, vacancies fell for a 12th straight month, but still sat above a million – higher than the 830,000 recorded in the months before the Covid pandemic struck the economy in Spring 2020.

Earlier Tuesday, an ONS spokesperson told MNI that “the total number of vacancies remained high, but have been falling for a year and the pace of decline has accelerated recently”.

Company payroll employee growth has also slowed markedly, now at 1.5% compared to 4.5% 18 months ago, the spokesperson noted, although the reduced rate of growth was still in line with pre-pandemic levels.

PAY PEAK CLOSE

“You can’t in anyway call the labour market weak yet, but we need to keep a watch on wages carefully for next few months,” Fitzner said. “It looks like (wage)s need to peak, they are ready to peak, but we must wait a couple of months before calling a top,” he added.

Despite a pick-up in the unemployment rate to 4.0% (May alone was 4.3%), the pressure on earnings saw total pay rise a nominal 6.9% in the period. Wages excluding bonuses rose 7.3% y/y. It was the highest rate of growth since March 2021 -- a period distorted by base effects a year on from the first Covid lock-down. Outside the pandemic period, the growth in ex-bonus earnings is a joint-record high in a series going back to 2001.

Total real earning using the CPIH measure fell 1.2% y/y, with ex-bonus earnings down 0.8% y/y.

The latest earnings data will make grim reading for the Monetary Policy Committee as wages continue to rise at a record pace. Policymakers have said they are starting to see some easing in tight labour markets albeit at a slower pace than they would like. (MNI INTERVIEW: UK's ONS Plans Data On Skilled Worker Demand)