The latest data from the Office for National Statistics (ONS) reveals that the unemployment level in the UK has experienced a slight increase.
The figures, covering the three months leading up to June, show that the unemployment rate rose to 4.2%, up from 3.9% in the previous quarter. This increase marks the highest unemployment rate since October 2021, surpassing pre-pandemic levels.
Record Pay Growth
Alongside the rise in unemployment, the ONS also reported record-breaking pay growth. Regular pay, which excludes bonuses, saw a significant increase of 7.8% compared to the same period last year. According to ONS statisticians, this represents the highest annual growth rate in regular pay since comparable records began in 2001. However, when adjusting for inflation (Consumer Prices Index including owner occupiers’ housing costs), real wages only rose by 0.1% for the year.
Impact on Workers
The surge in pay growth may initially seem like a positive development for workers, but it is essential to consider the impact of inflation. The Consumer Price Index, a key measure of inflation, stood at 7.9% in the year leading up to June. This means that the rate of price rises outpaced the growth in wages, resulting in an effective pay cut for many workers. It is worth noting that this is the first time since October 2021 that real wages have increased, indicating the ongoing struggle for workers to keep up with rising living costs.
Bank of England Concern
The governor of the Bank of England has expressed concerns about the sustainability of wage rises. The central bank has been attempting to combat inflation through a series of interest rate hikes. With 14 consecutive interest rate rises, the aim is to bring down inflation and stabilize the economy. However, the recent surge in pay growth may pose challenges to this goal, as it could further fuel inflationary pressures.
While private sector wage growth reached 8.2%, the public sector also experienced an increase in wages. Public sector wages rose by 6.2%, marking the highest increase since September to November 2001 when public sector pay grew by 5.7%. This increase in public sector wages reflects ongoing efforts to address wage disparities and ensure fair compensation for public sector workers.
The rise in the unemployment rate coupled with record pay growth presents a complex economic picture. On the one hand, the increase in wages indicates potential improvements in workers’ financial well-being. However, when considering the impact of inflation, the reality may be less promising. The challenge lies in striking a balance between wage growth and containing inflationary pressures.
Economists and policymakers will closely monitor these developments to gauge the sustainability of wage growth and its impact on the overall economy. It remains to be seen how the government and the Bank of England will navigate these challenges and ensure a stable economic environment for businesses and workers alike.
Sarah Loates, director of Derby-based Loates HR Consultancy: “It’s really tough in the jobs market right now and the rise in the unemployment rate is a real cause for concern. We’ve seen a slight uptick in redundancy enquiries, only a trickle at the moment, and we hope it doesn’t turn into a tsunami. Based on this evidence, things in the wider economy may be deteriorating faster than expected. SMEs are increasingly planning for worst-case scenarios, but we’re hoping they don’t have to enact their plans. Aside from ongoing recruitment challenges, we are also seeing employers struggling to shoulder the April National Minimum Wage and Living Wage increases, especially those in hospitality and retail, due to the volume of lower-paid workers. This is also causing a knock-on effect for leader-level roles in these sectors, as the gap between entry-level positions and team leaders is squeezed.”