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Businesses face wage conundrum

15 Nov 2017

Office workers walking down a streetResponding to official labour market statistics, showing that the unemployment rate remained at its record low of 4.3%, and annual wage growth was 2.2%, Tej Parikh, Senior Economist said:

“Every rose has its thorns, although near record numbers of people are in work, wages continue to lag behind inflation.

“The data for July to September showed that the unemployment rate remained at its 42-year low of 4.3%. That said, there were 14,000 fewer people in work compared with the three months to June, and basic pay (excluding bonuses) increased by just 2.2% in nominal terms, only slightly up from 2.1% a month ago.

“The drop in employment, for the first time in almost a year, is likely to be indicative of a tightening labour market. Regarding pay, although any increase is welcomed yesterday’s inflation figures show price rises hovering at a five-year high of 3.0%, well above wage growth. As such, households are set for tightened wallets over the Christmas period and into next year.

“Businesses face a conundrum. The reduced slack in the labour market comes at a time when firms are facing higher costs and uncertainty, which limits their scope to offer attractive inflation-beating wages. Firms will be looking to the Chancellor to provide support in next week’s Budget to invest in boosting their productivity and increase their capacity to raise pay.”

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