AJ Bell press comment - 14 June 2022
- Job vacancies rose to a record 1.3 million, according to labour data released by the ONS today
- Unemployment at 3.8%
- Regular pay fell 2.2% in real terms – despite robust wage growth
- Widening gulf between private and public sector pay growth heaps pressure on industrial relations
Laith Khalaf, head of investment analysis, AJ Bell:
“The economy might be stalling, but the labour market is still extremely tight, thanks in no small part to the large number of people who left the workforce during the pandemic. Job vacancies now stand at a record 1.3 million, and while growth in that number is slowing, the figure itself is still climbing, which of course makes life more difficult for businesses looking to recruit.
“The hot employment market is reflected in robust wage growth in the private sector, where total wages grew by 8% over the last year. That level of private sector wage growth is commensurate with the levels we saw in 2021, as the vaccine roll out allowed the economy to open up, but this time the distorted base effects have largely fallen away, which makes the number more meaningful. At an economic level this begs the question of whether a wage price spiral is beginning to bed in. It’s too early to answer that question, though a large part of the jump in private sector wage growth came from bonuses, perhaps a sign that companies are keeping staff happy with discretionary payments that can be withdrawn further down the line, should conditions change. Without bonuses, regular pay growth in the private sector came in at a more modest, but still respectable, 4.8%.
“Things are not so rosy in the public sector, where total pay growth came in at just 1.5%. That level of pay growth affords little protection for public sector workers against the ravages of high inflation, and heaps pressure on industrial relations, where we could continue to see the threat of strike action as a result. Across both public and private sector total pay growth after accounting for inflation came in just positive at 0.4%, though regular pay growth before bonuses fell by 2.2%. That means that elevated inflation has basically pinched the pay gains that workers have made, and as a result of the big wedge between private and public sector pay growth, that will be most keenly felt by public sector workers.
“The red hot labour market leaves little option for the Bank of England but to keep pressing down on the emergency brake pedal of interest rate hikes. The UK economy unexpectedly shrank in April, but the bank won’t pay too much attention to that, seeing as it was only one month’s reading, and was heavily distorted by the winding up of the Test and Trace service. The Bank of England has to prove it’s serious about controlling inflation to maintain credibility, even though it’s raising rates into a slowing economy. The result is a nightmare for consumers, who will face higher mortgage bills on top of rising fuel and energy bills. The cost of living package provided by the government will help, but ironically it might spur the central bank to raise rates more aggressively.”