Squeeze on consumer spending tightens as UK wage growth falls further behind inflation

UK unemployment has fallen further but disposable incomes remain under pressure.
Picture: Martin R

UK unemployment has fallen further but disposable incomes remain under pressure. Picture: Martin Rickett/PA Wire - Credit: PA

Employment in the UK has reached a new record level but the squeeze on incomes continues, with wages lagging further behind the rate of inflation according to the latest official figures.

The number of people in work grew by 181,000 in the May-July period, to an all-time high of 32.13m, data from the Office for National Statistics shows.

Total unemployment declined by 75,000 during the same period to a 12-year low of 1.46m and the narrower count of those eligible to claim unemployment-related benefit also fell last month by 2,800 to 806,300.

However, annual growth in earnings has remained static at 2.1%, in contrast with the CPI rate of inflation which rose to 2.9% last month, compared with 2.6% in June and July. Taking this into account, pay has slipped by 0.4% over the last year.

Unemployment rates in Suffolk and north Essex were largely unchanged last month, despite the local figures not being adjusted for normal seasonal variations and therefore tending to be more volatile.

In Suffolk, the jobless rate edged 0.1 higher in Babergh, to 0.9%, with the claimant count rising by 20 to 445, while the rate dipped by 0.1 in Forest Heath, to 0.8%, after the count fell by 10 to 330.

Elsewhere in the county, small increases in the count left rates unchanged in Ipswich, up 25 to 1,750 (2.0%), Mid Suffolk, up five to 460 (0.8%), St Edmudsbury, up 15 to 760 (1.1%), Suffolk Coastal, up 20 to 455 (0.6%), and Waveney, up five to 2,300 (3.5%).

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In north and mid Essex, an increase of five to 235 in Uttlesford was enough to nudge the rate 0.1 higher to 0.5% while a similar increase in Tendring, to 2,035, left the rate unchanged at 2.6%.

Rates were also unchanged in Chelmsford, where the count fell by 20 to 1,170 (1.1%), and Maldon, where the count was static at 355 (0.9%), but rates fell by 0.1 in Colchester, down 20 to 1,370 (1.1%), and Braintree, down 30 to 950 (1.0%).

Across the East of England as a whole, total unemployment in the three months to July was 7,000 lower compared with the previous quarter at 121,000, representing a jobless rate of 3.8%. This compares with a UK average of 4.3%, down 0.2 on the previous quarter and the lowest since 1975.

Howard Archer, chief economic adviser for EY ITEM Club, said: “Despite lacklustre economic activity, employment growth remains strong, but it is still failing to generate any marked pick-up in earnings growth.

“While earnings growth remains muted, the further strong rise in employment provides some good news for consumers.

“However, still strongly rising employment amid muted economic growth is not good news for the already worryingly weak UK productivity.”

Ed Monk, an associate director at Fidelity International, added: “Lagging wages makes it more likely the Bank of England will look through rising inflation when it decides on interest rates this week.

“Prices are rising above target, which creates the case for raising rates, but today’s wage data suggests all is still not right in the economy.“