Faster pace of average real weekly pay growth plus slight fall in employment and slight rise in jobless rate - might the UK economy be embarking on a productivity revival?

The Office for National Statistics (ONS) has this morning released the latest set of UK labour market data, mostly covering the three months March to May 2015.

The strong jobs recovery looks to have taken a pause in the spring. Although the number of people in work fell by 67,000 in the quarter to 30.98 million and the number unemployed increased by 15,000 to 1.85 million these changes are tiny relative to the magnitudes involved. Better therefore to think of the employment rate (73.3%), the unemployment rate (5.6%) and the economic inactivity rate (22.2%) as, to use the ONS’ phrase, little changed.

Indeed the quarterly fall in employment is almost entirely due to fewer people in self-employment (down 55,000), the number of employees in fact increasing by 5,000. The level of vacancies remains high at 726,000 (albeit down 17,000 on the quarter). Moreover, youth unemployment fell by 13,000 and there was also a small monthly fall (in June) of 2,500 in the number of people claiming Jobseeker’s Allowance. No need therefore to panic.

However, if the jobs recovery has paused the opposite is true for the pay side of the labour market. Total pay for employees is rising at an annual rate of 3.2%, higher than at any time since spring 2010, and regular pay (excluding bonuses) by 2.8%, the highest rate since winter 2009. With the CPI inflation rate close to zero between March and May this year these represent real pay increases, mimicking what one would see if the economy were still enjoying the pre-recession trend rate of productivity growth prior to the productivity slump.    

While it’s far too soon to conclude that these figures overall indicate a change in the recent UK labour market trend, a faster pace of wage growth plus slightly weaker jobs and unemployment performance might suggest an economy that for several years has preferred more jobs to higher pay is at last embarking on a productivity revival.

On the positive side, the slightly weaker jobs and unemployment figures may ease pressure on the Bank of England to raise interest rates for the time being despite mounting concern over the possible inflationary effect of stronger real wage growth. On the negative side, a slowdown in the pace of the jobs recovery is bad news for jobseekers for whom the availability of work is more important than what’s happening to pay.