The Office for National Statistics (ONS) has reported a drop in UK wages from October to December 2023, while employment growth slowed over the course of last year.
This marked the slowest growth since the three months to October 2022.
In contrast to nominal wages, the real regular wages that are adjusted for inflation marked a rise of 1.9 percent. This is owing to the falling rate of inflation since a peak of 11.1 percent seen in October 2022.
“It’s good news that real wages are on the up for the sixth month in a row and unemployment remains low, but the job isn’t done. Our tax cuts are part of a plan to get people back to work so we can grow the economy—but we must stick with it,” said Chancellor Jeremy Hunt.
Labour Market
The rate of unemployment for those aged 16 years and over has returned to the levels recorded a year ago, as the ONS reported a decrease to 3.8 percent in the latest quarter.
The number of employed people has increased from a low in the previous quarter. However, at 75 percent, the employment rate still remains below estimates from a year ago, when it stood at 75.2 percent.
“It is clear that growth in employment has slowed over the past year,” said Liz McKeown, director of economic statistics at the ONS.
In November 2023 to January 2024, the estimated number of vacancies in the UK fell by 26,000 on the quarter to 932,000. This is the 19th consecutive quarterly fall and the “longest ever recorded,” the ONS said, but vacancies still remain above pre-COVID-19 pandemic levels.
The steady fall led to a vacancy-to-unemployment ratio of 0.71 in the fourth quarter of 2023. According to economist Paula Bejarano Carbo at the National Institute of Economic and Social Research, this represents a 0.16 percentage point fall on the year and indicates that the labour market has loosened.
“If this trend continues, wage growth is likely to gradually return to historical levels in the medium term,” Ms. Bejarano Carbo added.
The ONS reported that over the past year, the “proportion of people neither working nor looking for work has risen, with historically high numbers of people saying they are long-term sick.”
In the latest quarter, the economic inactivity rate, which is the proportion of people aged between 16 and 64 who are not in the labour force, was at 21.9 percent.
Economic inactivity increased over the COVID-19 pandemic, mainly owing to illness and people staying in or entering education.
“Of greater concern is the record 2.8 million people who are long-term sick. This is holding back the economy, putting pressure on the public finances and the NHS, and limiting opportunities for too many people,” said Hannah Slaughter, senior economist at the Resolution Foundation.
Ministers in Westminster should prioritise reversing this trend, she added.
David Miles, who sits on the Office for Budget Responsibility’s Budget Responsibility Committee, said that the UK economy would benefit if there were fewer people not participating because of health issues and fewer people under-employed, or not employed at all.
“Not only do these sorts of rising employment generate more incomes and tax revenues they can also reduce the welfare payments bill,” he told the House of Lords’s Economic Affairs Committee.
Commenting on the labour market activity figures, the ONS said that they “should be treated with additional caution” because of the low response rates in its Labour Force Survey.
