Wages beat their pre-financial crisis peak for the first time at the end of 2019, as the level of UK employment rose to a record high of 32.9m people.
A total of 180,000 people entered the workforce between October and December 2019, the Office for National Statistics (ONS) said today.
That took the number of employed people to a new record high, 0.4 percentage points higher than the previous quarter and 0.6 per cent higher than a year ago.
The employment rate also hit a fresh peak of 76.5 per cent, up from November’s 76.3 per cent.
Meanwhile, unemployment fell by 16,000 to 1.29m, or a rate of 3.8 per cent, over the three months.
And real weekly earnings beat their pre-financial crisis peak for the first time since 2008, the ONS said.
Economists credited an easing of Brexit uncertainty and political tumult after Boris Johnson’s General Election victory for helping businesses hire more staff.
The robust job figures boosted GBP after the pound slipped below $1.30 in early trading after the UK’s warning to the EU in trade deal talks. Sterling rose 0.28 per cent to stand at $1.3039 after the economic data arrived.
IG analyst Chris Beauchamp welcomed the UK wages milestone, saying it “will be heralded as a new dawn for the British workforce”.
And Jing Teow, economist at PwC, said the job numbers chime with stronger than expected GDP recovery in December.
She added that it “further signals that business confidence is turning a corner as the fog of uncertainty lifts”.
Howard Archer, chief economic adviser to the EY Item Club, said:
The labour market has been remarkably resilient – which has been good news for UK consumers, but has been bad news for UK productivity given lacklustre growth. The labour market has undoubtedly been helped by businesses preferring to employ rather than commit to investment, given current heightened uncertainties and the fact that employment is relatively low cost and easier to reverse if business subsequently stalls.
December’s decisive General Election and the UK’s exit from the EU on 31 January with a deal has diluted some of the uncertainties facing companies and this should provide some support to employment.
Nevertheless, UK-EU relationship uncertainties have far from disappeared while the global economic environment is currently difficult and uncertain, so this may limit the upside for the labour market.
Women drive employment growth
Women drove the rise in Britain’s workforce as 150,000 entered employment between October and December to hit a record high of 15.6m women in work.
“Employment continues at a record high… however, we’ve yet to see this trend register within household behaviour,” Fidelity’s personal investing director Tom Stevenson said
“In theory, consumers should be feeling more confident in their outlook – yet months of disappointing retail trading figures suggest an unwillingness to spend. This is perhaps unsurprising given high levels of political and economic uncertainty, and only time will tell whether we’re entering a more positive period for the UK economy.”
Wages beat 2008 levels
Average weekly earnings beat their March 2008 pre-financial crisis peak for the first time in December. Excluding bonuses, weekly earnings rose 1.8 per cent to £474 based on 2015 prices.
That took them above the pre-financial crisis high of £473. Including bonuses, wages rose 1.4 per cent to £503.
Sarah Coles, personal finance analyst at Hargreaves Lansdown, hailed the post-financial crisis recovery, but said the full picture is more complicated.
“Anyone who had to move into a less well-paying job has far more of a mountain to climb to get back to where they were,” she said. “It’s also easier to score a pay rise if you’re in an industry where wages grow faster – like banking – rather than one where they’re more sluggish – like retail.”
But the annual rate of wage growth has slowed in recent months from a peak growth rate of 3.9 per cent recorded between May and July 2019. That fell to 3.2 per cent between August and October, and now the rate is less than half that.
“Slowing wage growth is a concern as it could trigger a broader slowdown in household spending, a major driver of UK economic growth,” said the British Chambers of Commerce’s head of economics Suren Thiru.
“A weak economy, low productivity and high employment costs are limiting increases in pay settlements.”
“The bigger than expected slow-down in wage growth to just 2.9 per cent in the three months to December re-kindles speculation that the next move in UK interest rates might be down,” Fidelity’s Stevenson added.
Bank of England unlikely to cut rates
“The Bank of England is likely to continue sitting on its hands, however, with new chancellor Rishi Sunak, expected to bow to the Prime Minister’s desire to boost government spending in next month’s Budget,” Stevenson added.
PwC’s Teow warned momentum in wage growth is fading, and said that would convince the Bank of England’s monetary policy committee (MPC) to hold rates.
“The rebound in employment and slightly weaker pay growth suggests that the Bank of England is under less pressure next month to cut rates to boost the economy,” she said.
Capital Economics’ UK economist, Thomas Pugh, agreed, saying: “Overall, the strength in the labour market in the fourth quarter will give some comfort to the MPC that it was right to keep rates on hold at 0.75 per cent at its meeting on 31 January.
“Of course, this is all old news, but the most recent surveys are suggesting that employment growth will continue to pick-up in the first quarter, which we think will contribute to the MPC keeping rates on hold at its next meeting on 26 March as well.”