Companies scrambling for staff after lockdown rules loosen

Wage growth has hit record numbers in the United Kingdom (UK), as companies posted more than one million new job vacancies for the first time.

This record wage growth has come in an unprecedented scramble for staff following the loosening of lockdown rules. The average earnings in the three months through to June surged a record 8.8 per cent from a year earlier, the Office for National Statistics (ONS) reported on Wednesday (August 18).

While the figure partly reflects distortions created by the pandemic, the fact is that underlying wage pressures are also gathering pace. Bloomberg is reporting that the pickup underscores the scale of the recovery from the deepest economic slump in 300 years.

Warning about modest withdrawal of monetary stimulus

Although the Bank of England (BOE) expects strains in the labour market to prove temporary, policymakers warned this month that meeting the two per cent inflation target will require a modest withdrawal of monetary stimulus. The employment figures are a fillip for Chancellor of the Exchequer, Rishi Sunak, who is seeking to scale back the pandemic hit to the public finances by moving people from the jobless and furlough rolls back into work.

According to Bloomberg’s Dan Hanson, “the swift turnaround in the labour market showed no sign of abating in June. But the real test will come when the government withdraws its furlough program at the end of September. This will be central to the Bank of England’s thinking as it weighs the appropriate time to tighten.”

He said the expectation for a modest rise in the jobless rate to scupper the case for a rate hike in the first half of 2022. While there is a rise in employment, pay growth has been skewed higher by depressed wages a year earlier and compositional effects caused by job cuts falling disproportionately hard among the low paid.

Excluding those factors, the ONS reckons that earnings growth is running at between 4.9 per cent and 6.3 per cent. For pay excluding bonuses, the figure is estimated at 3.5 per cent to 4.9 per cent.

Concerns about rising wage pressures

The BOE is concerned that rising wage pressures will feed through to inflation, which leapt above target in both May and June. The Monetary Policy Committee (MPC) expects consumer prices to surge as much as four per cent around the end of this year before falling back toward the two per cent goal in 2023.

Figures due tomorrow are forecast to show a modest easing in inflation. “While the alarm bells aren’t ringing yet, the MPC will likely be keeping a careful eye on where pay rises and go from here,” said Martin Beck, senior economic advisor to the EY ITEM Club, an economic forecasting group that uses the treasury’s model for the UK.

The headline rate of unemployment fell to 4.7 per cent in the second quarter, the lowest since the summer of 2020 after the first pandemic lockdown. That figure is set to rise when wage subsidies for furloughed workers end on September 30.