Millions of workers are experiencing a salary squeeze at a time when the job market is deteriorating. According to data released by the Office for National Statistics, average wage growth has decelerated to 3.4% year-on-year from January to March. Private sector pay growth has dropped to 3%, while in the public sector, it remains at 4.8%.
With inflation climbing to 3.3% and expected to rise further due to the economic repercussions of the conflict in Iran, experts caution that many employees may begin to see a decrease in real-terms wages. Simultaneously, as the job market weakens, employees are finding it challenging to negotiate for pay increases that keep up with inflation.
The ONS report indicates that the unemployment rate has inched up to 5%, and the number of job vacancies has decreased to 705,000, the lowest level since the onset of the Covid crisis. Excluding the pandemic period, there are currently fewer job opportunities than in over a decade.
In March, the number of individuals in payrolled positions declined by 104,000 on a yearly basis, with early estimations suggesting a further drop of 210,000 in April. The count of individuals receiving out-of-work benefits increased monthly but decreased annually to an estimated 1.699 million.
Economist Jack Kennedy from job portal Indeed highlighted, “The latest data indicates a labor market under strain. Decreasing vacancies, diminishing payrolled employment, and an increasing jobless rate signify the impact of rising costs and uncertainty on the job market.”
Chief economist Suren Thiru at the Institute of Chartered Accountants in England and Wales noted, “These figures reflect growing distress in the UK labor market as escalating labor expenses and fallout from the conflict in Iran prompt more businesses to limit hiring and wage hikes.”
Chief economist Yael Selfin at KPMG pointed out, “Workers are likely to see a period of declining real wages as inflation is poised to outpace earnings, primarily driven by higher energy and food costs. Unlike the 2022 energy shock, the subdued labor market is anticipated to constrain workers’ ability to secure higher pay increases to offset rising expenses.”
Economists suggest that the slowdown in wage growth may lead the Bank of England to maintain interest rates in the upcoming month.
Julia Diniz, an economist at the Resolution Foundation, emphasized, “The UK labor market entered this phase of economic uncertainty in a vulnerable state, with a 5% unemployment rate and zero real wage growth. With inflation projected to rise in the coming months, the UK is on the brink of its fourth period of declining real-wage growth in less than two decades, reflecting the discontent prevalent in modern Britain.”
Diniz added, “The current weakness in the UK labor market is likely to avert wage-price spirals akin to those following Russia’s invasion of Ukraine, prompting caution at the Bank of England regarding interest rate hikes.”