Millions of employees are encountering a salary squeeze during a challenging period in the labor market.
Recent statistics from the Office for National Statistics indicate that the average wage growth decelerated to 3.4% year-on-year in the first quarter of the year. While private sector pay growth dropped to 3%, public sector wages stood at 4.8%.
With inflation reaching 3.3% and expected to rise further due to the repercussions of the Iran war, experts caution that many workers may soon experience a decrease in real wages.
Simultaneously, the tightening job market is making it increasingly difficult for workers to negotiate pay raises that match inflation rates.
According to the ONS data, the unemployment rate slightly rose to 5%, and the number of job vacancies declined to 705,000, marking the lowest level since the onset of the Covid crisis. Excluding the pandemic impact, job opportunities are currently scarcer than they have been in over a decade.
In March, the number of individuals in payrolled positions decreased by 104,000 year-on-year, with preliminary estimates suggesting a further decline of 210,000 in April. The claimant count for individuals receiving out-of-work benefits rose on a monthly basis but decreased compared to the previous year, totaling an estimated 1.699 million.
Jack Kennedy, a senior economist at the job-search platform Indeed, highlighted the strain evident in the labor market, with decreasing job vacancies, declining payrolled employment, and a rising unemployment rate indicating the tangible impact of escalating business costs and uncertainty on job market conditions.
Suren Thiru, the chief economist at the Institute of Chartered Accountants in England and Wales, pointed out the growing distress within the UK labor market, attributing it to escalating labor expenses and the fallout from the Iran conflict, leading more businesses to curtail hiring and restrict pay raises.
Yael Selfin, chief economist at KPMG, predicted a period of diminishing real wages for workers, foreseeing that headline inflation will outpace earnings due to surging energy and food prices. The current weakened labor market is expected to constrain workers’ ability to secure higher pay adjustments to offset the rising living costs.
Economists anticipate that the deceleration in wage growth will likely prompt the Bank of England to maintain interest rates at their current levels in the upcoming month.
Julia Diniz, an economist at the Resolution Foundation, highlighted the vulnerabilities in the UK labor market, emphasizing the stagnant wage growth and the looming threat of declining real wages amidst the anticipated inflation rise.
She also noted that despite the challenging economic landscape, the UK is less likely to witness wage-price spirals akin to those following Russia’s incursion into Ukraine, urging caution to the Bank of England regarding any potential interest rate hikes.