Pay matches price rises even as unemployment rises

Image source, Getty Images

Wage growth has caught up with rising prices for the first time in nearly two years, even as unemployment rises.

Official figures showed regular pay, excluding bonuses, rose by 7.8% in May to July compared with a year earlier - matching the pace of inflation over the same period.

"This means people's real pay is no longer falling," said the Office for National Statistics (ONS).

However, the unemployment rate went up and job vacancies fell again.

Darren Morgan, director of economic statistics at the ONS, said earnings continued to increase rapidly, while inflation - the measure of how fast prices of goods and services are rising - has come down from its highs.

The unemployment rate rose to 4.3% in the three months to July from 4.2% a month earlier, and job vacancies fell to below a million.

Mr Morgan told the BBC's Today programme that the increase in unemployment was driven by men, and by those out of work for up to six months.

"So it seems that people who are re-entering the jobs market after telling us they are unavailable for work or they've lost their job, are taking longer to find work compared to what we saw earlier in the year."

Reacting to the latest figures, Chancellor Jeremy Hunt said: "It's heartening to see the number of employees on payroll is still close to record highs and that our unemployment rate remains below many of our international peers."

He said wage growth "remains high", but added: "For real wages to grow sustainably we must stick to our plan to halve inflation."

The data is crucial in setting the rise in the state pension from next April.

This is governed by what is known as the triple lock, which sets the increase of the highest of average earnings, inflation or 2.5%.

The earnings for that calculation - which are total pay, including bonuses - was recorded at 8.5%.

The inflation figure is yet to be published, but seems unlikely to be higher.

That means the state pension is likely to rise by 8.5%, which would be a weekly increase of £13.30, or an annual increase of £691.60 on the basic state pension - taking the total for the year to £8,814.

For those receiving the new flat-rate state pension, going to those who reached state pension age after April 2016, the rise is set to be £17.35 a week, or £902.20 a year - taking the total for the year to £11,502.

There are a lot of moving parts in today's jobs data. While wages are no longer being squeezed by inflation, on average, there are now consistent signs that the jobs market is beginning to "turn".

The headline unemployment rate is up to 4.3% for the first time in nearly two years, just below 1.5 million. It is low by historic standards, but has jumped 0.5%. At the same time, the number of vacancies has dropped below one million. Interest rate rises are having an impact on slowing the jobs market. While that has not yet filtered through to lower wage claims, it should do eventually.

The Bank of England hawks, who want to raise rates further, will focus on record earnings rises, in cash terms (though it is important to note that real earnings flat at zero, using the Consumer Prices Index measure, is still far from normal for a measure which before the Great Financial Crisis, grew by 2% in a typical year). The doves, who think we have perhaps had enough rises for now, will focus on rising joblessness and fewer vacancies. All eyes now on the inflation data next week, before a decision next Thursday.

The most politically important number to emerge today, however is 8.5% - the total growth in earnings in cash terms, and the figure which will determine the rise in the state pension next April thanks to the triple lock. This is almost certain to be higher than the rise in prices next month (around 7%) normally used to increase most benefits and tax credits.

The government is pondering whether to save billions by using a lower number even than that next April. A decision will be made before November's Autumn Statement.

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