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Wages fall but UK employment is at record high

This highlights the Bank of England’s dilemma over increasing interest rates

The number of people in work in the UK hit a record high in November, but wages haven’t picked up. That’s according to to the latest official figures from The Office for National Statistics (ONS).

The ONS report showed that employment throughout the country had increased by 102,000 in the final quarter of 2017, to 32.2 million people in work, bumping the employment rate to 75.3% (the joint highest since records began).

This comes after two reports where employment numbers declined. Unemployment fell slightly, leaving the UK’s unemployment rate unchanged at its lowest since 1975 (4.3%). Job vacancies also hit a high in the three months to December (810,000), which showed a high demand for workers.

The ONS has also reported that average wages were only up by 2.3% year-on-year, well below the inflation rate, which means, in real terms, we’re not being paid any more than before.

That quarter’s growth in rates of pay was unchanged at 2.5%. However, analysts note that in the months leading to December, there was a moderate rise in the rates of pay growth by 0.1% (from 2.3% to 2.4%).

The data overall underscored the Bank of England’s challenge in setting interest rates, it often regards rising employment as evidence for a tightening of the economy, but it has have been waiting in vain for growth to pick up.

Ben Brettell, from Hargreaves Landsdown, suggested in response to the report that it seems as if there has been a shift in the jobs market, with new technologies and global competition making things even tougher.

The bank raised interest rates in November last year in order to control what it thought was underlying inflationary pressure. However, financial markets are predicting two further increases by December 2020.

Inflation on prices on the high street in November last year was at 3.1%, but then declined to 3% in December, which was enough to prompt analysts to predict that it has peaked, at least for the moment, with the power of the pound increasing after falling slightly since its fall following the Brexit vote.

The latest data points towards an 8% fall in wages in November, meaning that household disposable incomes were as under pressure as ever as Christmas came into play.

The entire UK economy took a beating as inflation took its toll on incomes and businesses waited to invest, while the Brexit vote led to more uncertainty.

Suren Thiru, from the British Chamber of Commerce, commented that it is inspiring that the growth in regular earnings has increased, and felt that the current restrained conditions are likely to control the growth in wages for the next year.

Because of this, she suggested, it’s probable that the growth in pay will stay well below the growth in prices on the high street, at least over the next quarter. This will mean less household spending, which will create a downturn in GDP growth.

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