UK Labor Market: Core Wage Pressures hit New Cycle -Low as Jobs Growth into Sharp Reverse
Even more clearly, there are further signs that the labor market is haemorrhaging jobs both clearly and broadly with fresh falls in the more authoritative measure of jobs covering payrolls. Indeed, private sector payrolls are still falling, down over 0.8 ppt in y/y terms with the m/m drop the largest since early pandemic days. Moreover, last month’s surprise fall in the jobless rate to 4.9% was partly reversed, but the more important feature being a fresh rise in in inactivity, possibly reflecting dashed hopes of finding a job. This is not surprising given the further fall in vacancies. Indeed, the ratio of vacancies to unemployed – perhaps a better guide of labor market tightness than the jobless rate as it reflects both the supply and demand for labor continues to trend lower (Figure 1). As a result, it does seem as if this is at least partly behind the further fall in wage pressures. Indeed, private sector regular earnings are now running at around 3%, the lowest since pandemic related pressures softened them in mid-2020 abd actually even slower in the last few months (Figure 2).
Figure 1: Labor Market Loosening Taking Toll on Wages
Source: ONS, CE
This private and regular measure of earnings is the barometer the BoE use to gauge wage pressures and is now running at a pace (ie about 3% y/y) consistent with the 2% CPI target, this on the assumption of productivity growth of around 1%. Admittedly, the data now reflect post-Iran War dynamics and may not affect what will be divided BoE thinking given the distortions still involved in the numbers. But what is key is that private sector earnings are growing well below the 7%-plus pace seen before the Ukraine War started four years ago. In fact, in terms of short-term dynamics, private sector regular earnings have growth a meagre 0.6% (ann rate) in the last three months (Figure 2).
Regardless, the latest official labor market data (still bereft with reliability questions) are showing more comprehensive signs that the labor market is loosening with activity rates rising further and back to almost pre-pandemic levels. Partly as a result, the jobless rate has risen afresh to 5.0% and, in tandem with what are still weak(er) vacancies, is very much showing that the ratio of the two has hit new highs, also consistent with a looser labor market. This helps explain the clear(er) signs of softer wage pressures with the growth rate of private sector regular pay down to the lowest since end-2021.
Figure 2: Private Sector Pay Hardly Growing at All
Source: ONS, CE