Highest rate of 74.6% since data collection began in 1971 but wage growth slows
Employment reached a record high in the fourth quarter of 2016 but slowing wage growth suggests households are likely to feel squeezed as inflation picks up during the year.
The employment rate rose to 74.6 per cent in the final three months of last year, the highest rate recorded since data started being collected in 1971. But figures from the Office for National Statistics yesterday also showed wage growth slowed: average earnings were 2.6 per cent higher over the fourth quarter compared with the same period a year earlier, down from 2.8 per cent a month earlier.
David Freeman, senior statistician at the ONS, said the labour market “appears to be edging towards full capacity”.
More working women pushed employment to record high
Male employment rates remain well below 1970s levels but the amount of women in work hit a record high of 70 per cent. The unemployment rate stayed at 4.8 per cent, the lowest level since 2005.
The increase in employment was due to a 45,000 rise in the number employed full-time, while the number working part-time fell by 7,000. But the rate of growth of employment has started to slow. Some 37,000 more were in work in the last quarter of 2016 than in the previous three months; lower than the net increase of 137,000 on average every quarter from 2012 to 2015.
Not all areas fared equally well
The UK-wide figures belie differences at a regional level. Employment rates hit a record high in London, the south-east and Northern Ireland but over the past year have fallen in Scotland, the north- east, north-west and east of England.
Debbie Abrahams, Labour’s shadow work and pensions secretary, said that “wide regional differences in the numbers of people in work remain”.
Andrew Charalambous, the UK Independence party’s work and pensions spokesman, said: “Too many Brits are left behind by a political establishment intent on fuelling a north-south divide . . . It’s time the government’s employment drive was extended to parts of the UK which have never recovered the loss of their manufacturing base.”
Wage growth slowed
At 2.6 per cent, annual growth in average earnings over the last quarter of 2016 was below analysts’ expectations. Inflation also picked up, meaning earnings rose by only 1.4 per cent after inflation, the lowest growth for two years.
Surveys by the Bank of England’s agents suggest this slowdown will continue in 2017. Employers predict average pay settlements of 2.2 per cent this year, down from 2.7 per cent in 2016.
What it means for interest rates
Rate setters at the BoE will be watching the labour market for signs they need to raise rates to avoid runaway inflation – more likely if workers had sufficient bargaining power.
“The question,” said Sebastian Burnside, senior economist at NatWest, “is whether [the slowdown in employment growth] is due to weaker demand for labour or difficulties finding enough candidates to fill vacant positions”.
Evidence so far is mixed. The ratio of unemployment to vacancies has fallen and is below its pre-crisis average. There has also been a fall in the share of part-time workers after full-time work. Both are signs of declining spare capacity.
Laura Gardiner of the Resolution Foundation said: “Encouraging news on jobs isn’t feeding through into earnings.”
