The Office for
National Statistics (ONS) has this morning released the latest set of UK labour
market data, mostly covering the three months February to April 2015.
The strong labour
market recovery continues. The number of people in work increased by 114,000 to
31.05 million in the quarter – despite public sector employment falling by a further
22,000 in Q1 to a new record low of 5.37 million on comparable figures - though
against the backdrop of a rising population and an increase in the number of
people participating in the labour market the employment rate dipped a little to
73.4%. According to the ONS’ quarterly workforce jobs measure, the service
sectors as a whole averaged a rate of jobs growth of 2.2% in Q1 2015, compared with
1.3% in manufacturing, 0.4% in construction and 0.5% for the economy as a
whole.
Unemployment
meanwhile fell by a further 43,000, the unemployment rate down to 5.5 per cent,
ever closer to the pre-recession low. With job vacancies also at a near record
high the rate of growth of average weekly earnings growth (both including and excluding
bonuses) has increased to 2.7 per cent, excluding bonuses faster than at any
time since the depth of the recession in early 2009, against a backdrop of near
zero CPI price inflation. Average weekly pay increased by 3.2% in the private
sector and 1.0% in the public sector, the rate of growth being relatively
strong in construction (4%) and wholesaling, retailing, hotels and restaurants
(3.9%).
For the time being
therefore the UK economy is delivering more than what prior to the recession
was considered a ‘normal’ rate of real wage growth of around 2.5% even though
labour productivity is still effectively flat-lining. However, this exceptional combination of
circumstances is unsustainable. With price inflation at some point set to rise
back toward 2% a continuation of real wage growth at the current rate will have
to be earned by a return to a more normal rate of productivity growth; if not
there will eventually be renewed upward pressure on prices and, ultimately, interest
rates. In recent months UK workers have benefited from an economy merely
mimicking a strong underlying recovery. We should enjoy this while we can. But
a genuine sustained recovery will need to be based on higher productivity.
