(Bloomberg) -- U.K. wage growth hit a record as companies posted more than 1 million new job vacancies for the first time in an unprecedented scramble for staff following the loosening of lockdown rules.
Average earnings in the three months through June surged a record 8.8% from a year earlier, the Office for National Statistics said Tuesday. While the figure partly reflects distortions created by the pandemic, underlying wage pressures are also gathering pace.
The pickup underscores the scale of the recovery from the deepest economic slump in 300 years. Although the Bank of England expects strains in the labor market to prove temporary, policy makers warned this month that meeting the 2% inflation target will require a modest withdrawal of monetary stimulus.
“These shortages are a long-term issue that pre-dates the pandemic,” said Neil Carberry, chief executive officer of the Recruitment & Employment Confederation. “Businesses need to realize that they are not simply going to fade away.”
The figures are a fillip for Chancellor of the Exchequer Rishi Sunak, who is seeking to scale back the pandemic hit to the public finances by moving people from the jobless and furlough rolls back into work.
“Our plan for jobs is working, saving people’s jobs and getting people back into work,” Sunak said in a statement on Tuesday. “There could still be bumps in the road, but the data is promising.”
What Bloomberg Economics Says ...
“The swift turnaround in the labor market showed no sign of abating in June. But the real test will come when the government withdraws its furlough program at the end of September. This will be central to the Bank of England’s thinking as it weighs the appropriate time to tighten. We expect a modest rise in the jobless rate to scupper the case for a rate hike in the first half of 2022.”
--Dan Hanson, Bloomberg Economics. Click for the full REACT.
Pay growth has been skewed higher by depressed wages a year earlier and compositional effects caused by job cuts falling disproportionately hard among the low paid. Excluding those factors, the ONS reckons that earnings growth is running at between 4.9% and 6.3%. For pay excluding bonuses, the figure is estimated at 3.5% to 4.9%.
The BOE is concerned that rising wage pressures will feed through to inflation, which leaped above target in both May and June. The Monetary Policy Committee expects consumer prices to surge as much as 4% around the end of this year before falling back toward the 2% goal in 2023. Figures due Wednesday are forecast to show a modest easing in inflation.
“While the alarm bells aren’t ringing yet, the MPC will likely be keeping a careful eye on where pay rises go from here,” said Martin Beck, senior economic advisor to the EY ITEM Club, an economic forecasting group that uses the Treasury’s model for the U.K.
The headline rate of unemployment fell to 4.7% in the second quarter, the lowest since the summer of 2020 after the first pandemic lockdown. That figure is set to rise when wage subsidies for furloughed workers end on Sept. 30.
Real-time tax data showed the number of employees payrolls rose by 182,000 in July, meaning that about 80% of the payrolls lost during the pandemic have now been recovered.
The number of job vacancies surged by 290,000, or 44%, to 953,000 from May to July, well above the level in February 2020. Arts, entertainment and recreation saw the strongest quarterly growth. Experimental figures show vacancies in July alone jumped 50,000 to a record 1.03 million.
“Vacancies are a forward-looking indicator due to lead times in recruitment, so we can be confident that employment will continue to increase over the coming months,” said Jonathan Boys, labor market economist for the CIPD, a group representing human resources staff. “The redundancy rate is back to pre-pandemic levels, which is another positive sign that the end of furlough will be relatively painless.”
Despite the availability of work, the number of people who are unemployed or out of the workforce is higher than before the pandemic and almost 1.9 million jobs were still furloughed at the end of June. That’s fueling inflation pressures by limiting the supply of labor. While these frictions have started to dissipate, BOE officials acknowledge they could be bigger than projected and persist for longer.
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