Record Fall in UK Unemployment Adds to Inflationary Concerns

Main points

• The latest ONS estimates suggest the annual growth rate of average weekly earnings was 6.0 per cent in the 3 months to August, consistent with what our tracker predicted last month.
• Today’s estimates also suggest that real regular pay in the UK fell by 2.9 per cent, marginally lower than the record fall in the second quarter but remains among the largest falls in growth since comparable records began in 2001.
• NIESR’s wage tracker now predicts that average weekly earnings will grow at 5.9 per cent in the third quarter of this year.
• The figures today show the largest disparity in public and private sector wages outside of the pandemic period, where private sector regular pay grew by 6.2 per cent while regular pay in the public sector grew by 2.2 per cent.
• The UK unemployment rate fell to 3.5 per cent in the three months to August, the lowest since 1974, driven largely by a record rise in the inactivity rate.
• The latest figures suggest the labour market is showing signs of an economic slowdown, with the number of job vacancies in the three months to September period falling by 46,000, the sixth consecutive quarter of weak vacancy growth and the slowest increase in demand since February 2021.

“Average weekly earnings, including bonuses, grew by 6 per cent in the three months to August, representing the largest post-pandemic growth in regular pay. Nevertheless, real regular wages fell by 2.9 per cent, confirming that wage growth is failing to keep pace with inflation. In light of heightened uncertainty and an increasingly recessionary outlook in the UK, we are now beginning to see a demand-side slowdown in the labour market that is met by a rising inactivity rate on the supply-side. It will be interesting to see what impact, if any, the growth-focused measures of the ‘mini-budget’ will have in this respect.”

Paula Bejarano Carbo
Data Analyst, NIESR

“Today’s ONS estimates suggest the unemployment rate fell to 3.5 per cent, the lowest since 1974. Though there were earlier signs that the labour market might have been cooling, the shortfall in labour supply means it remains exceptionally tight. The shrinking labour market will undoubtedly add to ongoing inflationary concerns, placing the Bank of England under further pressures as it also tries to avert risks in financial markets.”

Hailey Low
Associate Economist, NIESR

See our previous tracker to follow the analysis