Real wages saw a sharp fall last month, despite the continuing tightening of the labour market, official figures have shown.
The latest Labour Force Survey from the Office for National Statistics (ONS) found that the unemployment rate between January and March fell 0.3 percentage points compared to the previous quarter to 3.7 per cent.
At the same time, job vacancies between February and April increased to another record of 1,295,000, meaning that for the first time since records began there were fewer unemployed people in the UK than vacancies.
Despite this, real wages continued to fall. Between January to March, average total pay excluding bonuses increased by 4.2 per cent which, when adjusted for inflation, was equivalent to a 1.2 per cent fall.
The picture was slightly better for individuals receiving bonuses. Average total pay including bonuses increased by 7 per cent, equivalent to a 1.4 per cent increase when adjusted for inflation.
Jonathan Boys, labour market economist at the CIPD, said today’s figures showed the labour market remained in “rude health” despite waning consumer confidence.
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But, he said, because the figures were predominantly for the January to March period, analysing them was “like looking at the economy in the rear-view mirror while driving into a storm”.
“Every successive forecast of inflation seems to climb a little higher, increasing the gap between wage growth and price growth,” said Boys. “Many businesses rightly feel a moral obligation to alleviate the squeeze on their workforce. If pay increases aren’t possible, employers should look at other measures they can take to improve financial wellbeing.”
Boys suggested firms develop a financial wellbeing policy and take a look at their benefits offering to make sure it’s working for employees – noting that “fringe” benefits that offset costs such as housing, travel and childcare could particularly benefit those on the lowest income.
This was echoed by Pawel Adrjan, head of EMEA research at Indeed, who cautioned that the labour market was often a “lagging indicator”, and that this could be its last strong month before a slowdown. “Clouds are gathering on the UK’s economic outlook and with the cost of living crisis deepening,” he said.
Adrjan added that while the data showed a record-high movement of people from economic inactivity to employment in January to March – which he described as “encouraging” – this could at least in part have been driven by the rising cost of living.