In response to UK labour market figures released today, showing the unemployment rate held steady at 4.9% in the three months to August, Michael Martins, Economist at the Institute of Directors, said:
“The UK has reached full employment, so we would normally expect to see wage increases coming through. The service sector, which makes up 80 percent of the UK’s labour force, saw wage growth increase by 2.1% over the past three months, but this is still less than half the rate typical before the financial crash. Economic uncertainty is being felt differently in different sectors. Wage growth slowed in both the finance sector and construction, but manufacturing wage growth has held up.
“Vacancies in the arts, entertainment, and recreation sector increased, likely due to an increase in the number of tourists taking advantage of the weaker pound. Vacancies in other sectors like real estate, professional services and IT did not hold up as well. Crucially, they also shrank in smaller businesses, which tend to face smaller margins and have less of a savings buffer or access to credit to mitigate against any short term shocks. Unemployment among the young increased from 11.8 to 12.1. This is noteworthy as they have less experience and are therefore usually the first to be let go during a downturn.
“Historically, many workers have increased their wages by moving to new roles rather than bargaining for higher wages at their firm. If vacancies continue to suffer, it seems likely that wage growth will be limited going forward. This comes at a time when inflation is projected to increase due to the weaker pound, especially on essential items like food and energy, eating into disposable income.”