Employment across Britain has reached a fresh high but stubbornly weak pay growth leaves the Bank of England with a tough decision on interest rates when it meets in early August, the Resolution Foundation said today (Tuesday) in response to the latest ONS labour marker figures.
The UK employment rate rose to a new record of 75.7 per cent in the three months to May, driven principally by falling economic inactivity. The Foundation says that a tighter labour market with more firms looking to recruit is doing a good job of bringing new people, and especially disadvantaged groups, into the labour market – one of the key benefits of moving towards full employment.
However, real pay growth grew by just 0.4 per cent off the back of stubbornly weak nominal pay rises. The Foundation notes that nominal pay growth shows no sign of strengthening, and that the current level of nominal pay growth is – at 2.7 per cent – actually closer to post-crisis levels of pay growth than pre-crisis levels.
The Bank of England’s decision on interest rates will in the end be determined by whether they think that this poor performance on pay is simply as good as it gets given the UK’s poor productivity performance.
Stephen Clarke, Senior Economic Analyst at the Resolution Foundation, said:
“The UK economy has delivered yet another big jobs boost but very limited pay growth.
“The welcome news on employment is particularly good for those who are being brought into labour market either for the first time, or after a long spell out of work.
“Unfortunately the news for people once they are in work is less positive, as pay growth continues to disappoint.
“If the Bank believes that nominal pay growth should be the trigger for interest rate rises, it faces a tough judgement over whether current pay levels, weak as they are, are actually as good at it gets. If it takes the somewhat depressing latter view, then a rate rise will still be on the cards.”