THE spending power of UK households fell the most in at least 21 years as wage increases were eaten up by the fastest inflation in decades, official figures showed.
When adjusted for prices, average earnings excluding bonuses were 3.4% lower in April than a year earlier, the biggest drop since modern records began in 2001, Office for National Statistics said Tuesday. The average decline in the three months through April was 2.2%, the most since 2011.
The figures show how pay packets for most workers are failing to benefit from the tightest labor market in living memory. Earnings rose 4.1% in April, around half the rate of inflation. Wages including bonuses grew at a faster pace but the rewards are uneven.
The squeeze is piling pressure on Prime Minister Boris Johnson and creating a major challenge for Bank of England Governor Andrew Bailey as policy-makers try to curb of inflation without pushing the economy into recession.
“Our jobs market remains robust with redundancies at an all-time low,” Chancellor of the Exchequer Rishi Sunak said. “Helping people into work is the best way to support families in the long term, and we are continuing to support people into new and better jobs.”
Wages are rising too slowly for workers but are growing too quickly for companies, which are raising prices to protect their profit margins. The BOE is expected to deliver an unprecedented fifth successive rate hike on Thursday to avert a wage-price spiral, and money markets imply many more are on the way.
For the government, calls for further help are mounting. Tax rises are adding to the squeeze and ministers admit that a £15 billion aid package announced last month will only go so far to help.
The fall in real wages is based on CPIH inflation. When adjusted for CPI, they dropped 4.5% in April, the most on record, and by 3% in the three months through April, the most since 2011.
There were some signs that tightness in the labor market is beginning to ease as people rejoin the workforce. Unemployment rose unexpectedly in the three months through April to 3.8% from 3.7% the month before. That increase was driven by a drop in inactivity — the count of people neither in work nor looking for a job.
There were 41,000 more people without work but looking for a job, the first increase since the three months to December 2020. Employment rose as well as more people rejoined the labor market as inactivity fell.
Businesses said the overall picture leaves it difficult for many to hire staff. Vacancies hit a new record of 1.3 million, meaning there are as many jobs available as there are people looking for work for the first time in history. Employers added 90,000 payrolls in May, more than forecast.
The lack of staff is causing problems for employers and creating widespread disruptions everywhere from airports to hospitality.
“An increasingly tight labor market means it’s much harder for employers to fill job vacancies, impacting on their ability to operate normally and retain skills in the business,” said Jane Gratton, head of people policy at the British Chambers of Commerce.
Kitty Ussher, chief economist at the Institute of Directors, said: “Today’s data shows firms are continuing to hire as fast as they can, with the number of people on payroll, and the number of vacancies, both rising in the last month. This suggests order books remain strong and there is still plenty of demand in the economy.” — Bloomberg