A Boost to Wages, but a Rise in Unemployment: Conflicting News Amidst Economic Uncertainty

A Boost to Wages, but a Rise in Unemployment: Conflicting News Amidst Economic Uncertainty.

As Britain edges closer to its exit from the EU, the uncertainty surrounding the future of the UK economy has left its mark on the labour market. Amidst confusion in parliament, one or two equally surprising trends have been revealed across the employment sector.

Newly released figures suggest UK wage growth has reached 11-year high over the first 6 months of the year. The latest labour force survey shows that basic pay recently grew by 3.9%, representing the biggest jump and fastest increase in wages since 2008 – over a decade ago. This has come as a relief for workers, as it suggests Brexit uncertainty isn’t necessarily hitting pay packets just yet. Whilst undoubtedly good news, it doesn’t paint the whole picture, as a shrinking economy and threat of no-deal Brexit also leaves its mark.


Whilst the good news represents a significant boost, unemployment rates has also increased. The boost to wages has been offset by reports that unemployment has risen to 1.3 million, an increase of 31,000 in the second quarter of 2019, and that the UK economy has continued to shrink. Figures indicate that the UK’s economy shrank in the second quarter of the year by 0.2%; the first such contraction since 2012. UK economist at Capital Economics Andrew Wishart said ‘Demand for workers has cooled on the back of softer economic activity.’


Pawel Adrjan, UK economist at the global job site Indeed, commented: “This snapshot of the UK labour market is very much a tale of two halves. Unemployment has risen, but for those in work, pay-packets are swelling nicely – average wages are rising at their fastest level for more than a decade.” (https://www.ig.com/uk/news-and-trade-ideas/uk-unemployment-rate-rises–while-wage-growth-hits-11-year-high-190813)


So what’s behind the increase in wages? In real terms, after adjusting for inflation, regular pay is estimated to have increased by 1.9%. Matt Hughes from the ONS deputy said, “excluding bonuses, real wages are growing at their fastest in nearly four years, but pay levels still have not returned to their pre-downturn peak.” Part of the reason for the rise was the unusual timing of annual pay rises for public health workers last year, when a larger-than-usual increase was deferred until July.

Adding to the confusion is the almost contradictory reports suggesting that during the same time, the employment rate has reached its joint highest level since 1971. According to data from the Office of National Statistics (ONS), the employment rate across the UK has hit 76.1%. With economists poring over the reasons and implications, it seems this extra revelation could be a little misleading. According to ONS figures, the increase in UK employment to a record high of 32.8 million in the second quarter of the year was driven primarily by a sharp rise in the number of part-time jobs, indicating that those in full-time positions actually fell.

Figures don’t necessarily point to a healthy economy, with some economists suggesting the UK labour market is reaching a turning point. “The labour market appears to be reaching a turning point, with unemployment no longer falling, the number of job vacancies no longer increasing and companies and workers deterred from bigger employment decisions by Brexit and global uncertainties,” Economist at the National Institute of Economic and Social Research Arno Hantzsche said.

“As more workers have been snapped up elsewhere, firms have found it harder to fill their openings. While competition has pushed up salaries, thin margins and low productivity may set a ceiling for pay growth. Although vacancies remain high by historic standards, the number has been dropping since the start of the year.”

With impending economic uncertainty and a political climate changing by the day, the British labour market could actually be reaching its peak. ‘With investment in machinery and technology often deemed too risky right now, businesses have sought to bring on board more staff to help lift output,’ Chief economist at the Institute of Directors Tej Parikh said. “The total number of vacancies continues to slide further from the peak it reached at the start of the year, suggesting more employers are holding off on hiring.”

Much of the economic forecast in the climate of Brexit is unpredictable and more difficult than under normal circumstances to interpret. Whist representing little more than a snapshot, one which will no doubt twist and shift over the coming months, it’s an insight that provides a glimmer of hope amidst political and economic uncertainty.

Ian Stewart, chief economist at Deloitte (https://www.bbc.co.uk/news/business-49328855), said: “The days of sharply falling unemployment are behind us, but a tight labour market points to further gains in wages and spending power. Despite a second quarter decline in growth, the UK economy still has momentum.”