The unemployment rate in the United Kingdom has dipped further below its level immediately before the coronavirus pandemic, official data showed Tuesday, but sliding wages are continuing to worsen the nation’s cost-of-living crisis.
The reading also underscored the risk of inflation pressure in the labor market that has the Bank of England (BoE) on alert.
The jobless rate fell to 3.8% in the three months to February, from 3.9% in the three months to January, matching its level in the final quarter of 2019, according to the Office for National Statistics (ONS). It has not been lower since 1974.
However, there were some signs of reduced demand for staff, amid broader concerns that surging inflation will slow the economy this year as wages fail to keep up with prices.
“Much softer economic growth from April, due to the cost-of-living crisis, will dampen demand for labor and ease some of the tightness in the labor market,” said Thomas Pugh, an economist at accountancy firm RSM UK.
Although the number of job vacancies hit a record high in the three months to March at 1.288 million, the 50,000 increase from February was the smallest rise in nearly a year.
Employment rose by a weaker-than-expected 10,000 in the December-February period – economists polled by Reuters had forecast a 50,000 rise – while unemployment fell by 86,000, the ONS said.
“The latest batch of data brought some signs of a softening in labor demand, but the labor market remains tight,” Ruth Gregory, an economist with Capital Economics, said.
The BoE is watching closely for signs that the lack of candidates to fill jobs will push up wages to the extent that it risks a wage-price spiral.
Earnings excluding bonuses rose by 4% in the three months to February compared with the same period a year earlier, a stronger increase than those typically seen in the run-up to the pandemic and up from a previous reading of 3.8% growth.
But workers’ pay is failing to keep up with accelerating consumer prices, as Britain faces runaway inflation and rocketing energy costs as a result of the war in Ukraine and demand recovering from the pandemic.
Using the ONS’s CPI measure of inflation, pay excluding bonuses fell by 1.7%, the biggest drop since 2013.
British households are likely to suffer the biggest hit to their living standards this year since the 1950s, according to the government’s budget forecasters who think inflation could reach almost 9% later this year.
"Basic pay is now falling noticeably in real terms," said ONS economic statistics director Darren Morgan.
He noted however that "strong" bonuses were mitigating the effects of rising prices on people's total earnings.
British annual inflation accelerated to a 30-year high of 6.2% in February – and the BoE predicts it could surge further.
"The harsh reality is inflation has erased gains in wages and then some ... which for many means that while their pay packet has gone up, they can buy less stuff with it," said Interactive Investor analyst Myron Jobson.
"With the BoE predicting that inflation could hit double digits this year, workers could be trapped in a cycle of bumper wages only to see those gains nullified by rising prices."
The cost of living is set to soar even higher due to an April tax hike on U.K. workers and businesses and a fresh surge in energy bills.
Other figures on Tuesday showed British retailers reported weaker annual sales growth last month, reflecting growing pressure on consumer spending as well as seasonal factors around the timing of Easter.
