UK private sector pay grew almost five times as fast as that of public sector workers in the year to May, according to official data released as ministers prepared to sign off on big real terms wage cuts for teachers, doctors and NHS staff.
The figures showed hiring remained strong despite the growing pressures of high energy prices and rising living costs, with the employment rate 0.4 percentage points higher in the three months to May than in the previous quarter, at 75.9 per cent.
The unemployment rate held steady at the rate of 3.8 per cent recorded a month earlier — below its pre-coronavirus pandemic level — even though more people were joining the workforce, with economic inactivity down 0.4 percentage points on the quarter.
The number of unfilled jobs edged up to a record of 1.294mn, although the Office for National Statistics said the rate of growth in vacancies had slowed. Redundancies remained at a record low.
Kitty Ussher, chief economist at the Institute of Directors, said companies struggling to fill vacancies would be encouraged by “early signs” of people who had dropped out of the workforce starting to return. But she added that there was nothing in the data to prevent the Bank of England from continuing to raise interest rates when it meets in early August.
The ONS said growth in average weekly earnings, including bonuses, was 6.2 per cent in the three months to May, equivalent to a real terms pay cut of 0.9 per cent. Growth in regular weekly earnings of 4.3 per cent equated to a real terms pay cut of 2.8 per cent — a record drop. The ONS noted that these figures were slightly distorted by the comparison with a period in which many workers had been on furlough but said this was not as great as it had been earlier in the pandemic.
However, the overall figure masked a stark divide between private and public sector workers. Total pay growth of 7.2 per cent in the private sector was almost five times the rate of 1.5 per cent in the public sector, where many workers were subject to a pay freeze.
Nadhim Zahawi, UK chancellor, said the figures gave “encouragement in uncertain times”, adding that the government was helping households with rising living costs through grants and tax cuts while working alongside the Bank of England to bear down on inflation.
The tight labour market has given some workers more bargaining power, allowing them to secure bigger wage rises that go at least some way to offset the squeeze on household incomes caused by surging inflation — which stands above 9 per cent and is set to reach double digits by the autumn.
The disparity has led unions representing teachers, health workers and civil servants to threaten strike action if ministers sign off on further real terms pay cuts for the coming year.
“It is markets, not militancy, pushing pay higher,” said Tony Wilson, director of the Institute for Employment Studies, adding that labour costs were a decisive driver of rising prices.
However, Samuel Tombs at the consultancy Pantheon Macroeconomics said the figures would ease pressure on the BoE to step up the pace of monetary tightening. He argued this was because the data showed growth in total pay slowing, labour supply recovering and demand for workers starting to stabilise, with unemployment in the second quarter likely to overshoot the central bank’s forecast.