Wage growth in the UK private sector is accelerating

Britain’s private sector wage growth accelerated in the three months to October as inflation rose to double digits, according to data that promises to fuel an increasingly bitter row between ministers and unions.

Annual growth of 6.9 per cent in ordinary weekly earnings, excluding bonuses, was the highest outside the pandemic period in the private sector, the Office for National Statistics said on Tuesday – even as workers have seen their wages fall sharply in real terms as consumer prices have risen even faster.

Public sector workers have taken a much bigger hit to living standards, with their earnings growing by just 2.7 per cent over the same period, one of the biggest gaps on record between the private and public sectors, the ONS said.

The figures will reinforce concerns at the Bank of England, which is expected to raise interest rates again on Thursday, that a tight labor market is driving wage growth to a level incompatible with the inflation target of 2 percent. But they also show that this is almost exclusively due to wage agreements in the private sector. The government has argued that it cannot improve the public sector wage offer, for fear of further fueling inflation.

Jeremy Hunt, the chancellor, said in response to the figures that the government’s plans would “help more than halve inflation next year” but that this would require “some difficult decisions now”, adding: “Any action that risks building High prices in our economy will only prolong the pain for everyone.”

Ministers have refused to open talks over pay with unions representing nurses and other public sector workers ahead of a series of strikes that will disrupt travel, healthcare and other services in the run-up to Christmas. An attempt to avert a nurses’ strike ended in failure on Monday with Pat Cullen, general secretary of the Royal College of Nursing, complaining that ministers had “walked away” from any discussion on the core issue and that her members “didn’t get an extra penny” .

Neil Carberry, chief executive of the Recruitment and Employment Confederation, said: “Given the scale of disputes in parts of the public sector and in industries where the government plays a key role, the widening gap between private and public pay awards should create room for negotiation.”

Tuesday’s data showed that the deteriorating economic outlook is starting to affect the labor market, with job vacancies falling for the fifth straight quarter and the unemployment rate rising 0.1 percentage point from the previous quarter to 3.7 percent.

Yael Selfin, an economist at KPMG, said the data showed “expectations of lower turnover putting less pressure on employers to recruit, while employees become more cautious about moving jobs”.

However, this still led to unemployment being close to record low levels, with one vacant position for every unemployed jobseeker. Moreover, the rise in unemployment was partly due to people who had previously dropped out of the labor market starting to look for work again – a development that will be welcomed by policymakers, after a period in which increasing economic inactivity has led to pressure on wages.

The ONS said the economic inactivity rate fell by 0.2 percentage points in the quarter to 21.5 per cent as people aged 50-64 who had previously said they were retired began to return to the workforce.

The employment rate increased by 0.2 percentage points in the quarter to 75.6 percent, although it was still below pre-pandemic levels.

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