UK unemployment down – but so is the average wage

Aug 13, 2014

Economists warn of 'paymageddon' as average wages see 'shock' fall for the first time in five years

Matt Cardy/Getty Images

Unemployment figures are nearing a six-year low, but average wages have also fallen for first time since 2009, according to the Office for National Statistics. 

The unemployment rate fell to 6.4 per cent by the end of June, the lowest since late 2008, with the number of people unemployed dropping to 2.08 million.

However, average weekly earnings dropped 0.2 per cent in the three months to June, compared with a year earlier, marking the first fall since 2009.

Anthony Reuben, the BBC's head of statistics, notes that this is an average of what everybody is earning across the country. "Falling average earnings does not necessarily mean individuals are having their pay cut – it might fall if lots of people got part-time jobs, or if many new low-paying jobs were created, for example," he says.

The Office for National Statistics said the fall was mainly due to an unusually high growth rate for April last year, when many businesses waited until April to pay bonuses to take advantage of the government's tax cut from 50 per cent to 45 per cent.

Nevertheless, the Bank of England today slashed its forecast for wage growth, saying it now expected average salaries to rise by just 1.25 per cent this year.

Alan Tovery, jobs editor at the Daily Telegraph, describes the drop in wages as a "shock collapse" and says it makes "grim reading" for the Chancellor and the Bank of England when compared with 1.9 per cent inflation. Consumers find their incomes even more stretched as prices outstrip wage growth, he says.

Economist John Philpott labels it "paymageddon", warning that until the slack in the labour market is absorbed the "abundance of relatively cheap labour has caused the UK to become a more labour intensive, low productivity economy".

The Bank of England says that the timing and pace of interest rate rises will depend on the speed at which wages rise. Jeremy Cook, chief economist at currency company World First, says today's wage figures will therefore come as a "real gut punch" for investors hoping for an interest rate increase in the UK. 

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