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Wage Growth Slowing Down

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The Office for National Statistics has released data for the last quarter that meant that the number of people out of work stood at 2.08 million the end of June, a further reduction of 132,000, whilst the number working went up by 167,000.

The UK’s largest and most recognised independent producer of official statistics says that translates into unemployment falling by 0.1 percentage point from the previous month of May when it was at 6.5 per cent.

Unemployment figures

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The ONS draw their figures from the Labour Force Survey, which involves gathering statistics from 60,000 households every three months.

Even though Britain’s largest household survey recorded the jobless total at 6.4 per cent, the ONS state that can only be about 95 per cent accurate, but is no further than 0.2 percentage points out either way.

The Bank of England has now cut it’s average wage growth prediction by 50 per cent and is anticipating the average salary to only increase by 1.25 per cent in 2014.

The Bank downgraded this earlier today as the latest official figures revealed the average salary excluding any bonus had risen by 0.6 per cent, which is the most sedate increase since records were introduced thirteen years ago.

But the Bank also increased both this year and next year’s growth forecast by 0.1 percentage point to 3.5% and 3% respectively.

The research also show that Jobseeker’s Allowance claimants had fallen once again for the 21st consecutive month to 1.01 million, a further decline of 33,600.

However, the ONS state that the latest decrease in salaries was owing to last year’s alteration of bonus payments. They explained that the latest figure will not be like for like because many companies deferred their bonus payments by a month in 2013, which meant the data recorded was changed from March (the first quarter) to April (the second quarter). They go on to advise us that this will rectify itself in the near future.

Mark

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Bank of England governor Mark Carney expressed his worries over the slow wage growth and it has widened expectations of interest rates being kept on hold for at least a little while longer.

The low salary growth is a major factor for the Bank of England to use when measuring how much spare capacity there is in the UK economy. At the beginning of the year they estimated the GDP (Gross Domestic Product) about one to one and a half per cent. They now believe the figure has shrunk to about one per cent.

Mr Carney felt that there was not as much slack in the economy as previously thought and said: “The economy is returning to a semblance of normality, but whether normality in terms of real wages returns will depend on improvements in productivity. Not surprisingly, there is a wide range of views on the Monetary Policy Committee about the likely degree of spare capacity in the economy.”

Economist and labour market analyst John Philpott said: “Good news for the jobless is being offset by ever slimmer pickings for those already in work, giving the UK labour market a distinctly bittersweet flavour. This doesn’t look like a labour market that needs an interest rate hike to cool it down but instead one where workers appear desperate for a pay hike.”

ING senior global economist James Knightley feels there is room for optimism as he commented: “It is important to remember that the national minimum wage goes up by 3% in October and this could be the catalyst for broader wage increases in the UK economy.”

About the author

Peter Davis Peter Davis is a Marketing Analyst at PaydayLoan123 specialising in financial products. Peter writes most of our articles as he stays up to date with the latest information. He enjoys most sports, particularly playing football and watching his favourite football team. Peter really like his food too as we have all witnessed first hand!

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