Wage growth in the UK dipped to its slowest rate in more than a year at the end of 2019 but the labour market remained resilient, with a new record high employment rate despite the economy’s stagnation.
In the three months to December, annual growth in average weekly earnings slowed to 2.9 per cent for total pay, which includes bonuses, down from 3.7 per cent in the previous quarter, the slowest rise since summer 2018, according to data from the Office for National Statistics.
After adjusting for inflation, average earnings for total pay excluding bonuses grew 1.8 per cent, unchanged from the previous quarter, but enough to lift the level above the pre-financial crisis peak for the first time in more than a decade.
“The return to record pay at the end of 2019 marks an important — and welcome — milestone for the UK” said Nye Cominetti, Senior Economist at the Resolution Foundation. “However, the fact that is has taken 12 years to get to this point shows what a living standards disaster our pay packets have been”.
Earnings are still below their pre-crisis levels, however, if bonuses are included. The Resolution Foundation calculated that workers are, on average, nearly £150 a week worse off than if the pace of pre-crisis pay growth had continued.
The labour market remained resilient, despite the economy stagnating in the final quarter of last year, adding 180,000 jobs compared with the previous quarter, above the 145,000 rise forecast by economists polled by Reuters.
“The UK jobs market has stayed surprisingly resilient amid all the Brexit noise,” said James Smith, economist at ING. “Barring a significant deterioration in the broader growth outlook, we don’t expect the Bank of England to cut interest rates this year”
The employment rate, the share of working-age people in work, rose to 76.5 per cent, the highest since records began in 1971, while the unemployment rate, the share of those looking for work, was unchanged at a near-record low of 3.8 per cent.
The number of vacancies reversed an almost uninterrupted decline since February 2019 and increased by 12,000 in the three months to January compared with the three months period to November — the first rise in a year.
Debapratim De, UK economist at the consultancy Deloitte, said the jobs market was more resilient than expected. “The UK labour market continues to defy the recent slowdown in economic activity.”
Labour productivity, which measures output per worker, contracted 0.5 per cent in the last quarter of 2019 compared with the previous quarter, reflecting the rise in jobs against a backdrop of a stagnating economy. The key indicator has contracted for three of the past five quarters, further underlining the “productivity puzzle” that has seen the UK underperform its peers since the international crisis.
“Over the longer term, growth in productivity remains much slower than before the economic downturn of 2008-09” said Richard Heys, deputy chief economist at the ONS.
Labour productivity in the fourth quarter of 2019 was 29 per cent below the level it would have reached if the trend between 1992 and 2007 had continued, according to FT calculations based on ONS data. Higher productivity ultimately allows employers to increase pay.
Mike Cherry, national chair at the Federation of Small Businesses said the poor productivity data “illustrates why this shouldn’t be a time for complacency”.
“Small firms have been desperate for certainty for years, and will look to the upcoming Budget as an opportunity to help them grow and succeed,” he added.
