Average weekly pay in the UK has risen to its highest levels since before the financial crisis.
Weekly pay reached £512 in the three months to December 2019, which – adjusting for inflation – is the highest it has been since March 2008.
Excluding bonuses, earnings increased at an annual rate of 3.2% in the three-month period, say the latest figures from the Office for National Statistics (ONS).
Employment rose by 336,000 (or 1%) to another record high of 32.93 million, while unemployment reduced by 73,000 (or 5.4%) to 1.29 million.
The latest data showed the number of women in work increased again – this time by 150,000 in the three months to December 2019 to an all-time high of 15.61 million.
Rise in payroll costs
The Bank of England’s (BoE’s) Monetary Policy Report (MPR) for January 2020 said that the strong employment growth together with low unemployment mean the economy is facing a future of reduced labour market slack and rising labour costs.
While the labour market remains robust, economic growth in 2019 was subdued. There was zero GDP growth between October and December 2019.
Growth in the services and construction sectors was offset by a fall in production, resulting in flat econoimic performance. Economic growth slowed in 2019 because of Brexit-related uncertainties and weak global growth, said the Bank of England.
Brexit uncertainty persists
The BoE’s latest survey of UK business sentiment, conducted after the 2019 general election, suggested that uncertainty remains elevated, especially because of:
- The possible implementation of tariffs and other trade barriers
- Possible delays at borders
- A more restriced and less flexible labour market
- Another potential cliff-edge at the end of 2020 if there is no agreed trade deal with the EU
All these concerns have an infuence on the labour market. They may make firms take on fewer people and reduce the number of vacancies. In the 12 months to January 2020, the number of total UK vacancies decreased by 50,000 to 810,000 vacancies.
The fall in vacancies was primarily in the manufacturing and the information and technology sectors, which recorded reductions of 10,000 vacancies each.
More permanent vacancies
Another report on jobs painted a brighter picture than the MPR. The report said there was the biggest rise in permanent placements for over a year in January 2020, and vacancies (especially for permanent employees) increased at their quickest pace since March 2019. Permanent vacancies rose in the private sector but dipped a little in the public sector. There was weak growth in temporary placements.
There was some variation across the regions, with permanent staff appointments increasing in the North and the South of England, but falling in London and the Midlands.
London and the South of England both reported lower temp hires during January after increases in December. However, growth was maintained in the Midlands and the North of England.
Pay growth set to slow
However, the report highlighted that growth in pay is already slowing down despite current low unemployment, which indicates shrinking labour supply and will likely worsen skills shortages and increase labour costs.
This view is shared by the British Chambers of Commerce’s (BCC’s) Quarterly Recruitment Outlook, which said that the recruitment difficulties experienced by its members may be a result of persistent skills shortages in the labour market, which contribute to low productivity.
Jobs growth in services, transport, education and arts
The UK manufacturing sector stabilised at the start of the year after persistent declines in 2019 according to the IHS Markit and CIPS UK Manufacturing PMI report.
The improvement in the manufacturing sector increased confidence and ended the nine-month trend of sectoral employment losses. As a consequence, manufacturing vacancies increased by 4,000 during the three months to January 2020.
The services sector also appeared to bounce back at the start of 2020 thanks to increased demand. Business activity rose and firms were more likely to employ additional staff, with job creation in the sector at its highest since mid-2019.
Between November 2019 and January 2020, the number of job vacancies in transport and storage; education; and arts, entertainment and recreation rose by 5,000 each.