The UK labour market and household finances

Commentary on the UK labour market and household finance survey data, chief business economist, IHS Markit, Chris Williamson, said:

“Further signs of sluggish wage growth add to fears that economic growth will slow in coming months amid weaker consumer spending.

“Data from the Office for National Statistics showed regular pay rising just 2.1% in the three months to March. That was the smallest gain since July of last year.

“The pay data come fast one the heels of news that inflation has spiked higher to 2.7%, meaning real pay is falling at the steepest rate for two-and-a-half years.

“There was brighter news on unemployment and hiring. The jobless rate fell from 4.7% to 4.6%, its lowest since 1975. Over the same period, employment rose by a solid 122,0000, confirming PMI data which also showed robust hiring being sustained into the second quarter.

“The weakening wage trend amid an increasingly tight labour market underscores how the old rules of the labour market no longer seem to apply. The fact that fuller employment and lower unemployment is not pushing wages higher raises questions about the extent to which pay will rise in coming years. Employers seem able to dictate pay growth to a degree not seen in previous spells of very low unemployment.

“The impact of falling real pay is meanwhile already evident on family budgets. The Household Finance Index, a regular survey of 1,500 households also published today, showed finances being squeezed in May to one of the greatest extents in the past three years. The survey found on-going worries about the impact of rising prices and also saw a steep decline in the amount of cash that families have available to spend.”