Finally, we’ve stopped getting poorer with each passing month, as wages have returned to growth after inflation. However, this is the bright spot among a fairly dismal employment picture, and even this could bring more bad news further down the line.
Wages finally returned to growth after inflation. For the vast majority of people this is a big relief. After almost 18 months of getting gradually poorer with each passing month, pay has finally pushed ahead of inflation. As price rises continue to slow, there’s a reasonable chance we’ll start to feel very marginally less cash-strapped as we go through 2023.
However, it will be far less welcome for the Bank of England. Since the period of higher inflation started, there was always the risk that wages would need to rise to help people make ends meet, and that it would end up fuelling even more inflation. These figures may add to their concerns. It means we may well see another rate rise when the committee next meets. This raises the prospect that it could exacerbate growing weakness in the jobs market.
Weakness emerges
The one thing an awful lot of people have been able to rely on during this period has been their jobs. It has been the rock we’ve been able to cling onto amidst a tide of rising prices and higher interest rates. Now it appears this stability is at risk of being eroded.
The employment rate is down, unemployment has risen, redundancies are up, and vacancies have fallen. Job-to-job flows because of redundancy have reached their highest point since the end of last year. Meanwhile, inactivity is down – but flows have largely been from inactivity to unemployment. Vacancies were also down – and have now fallen for over a year. These are clear signs of a lack of confidence in the economy and an unwillingness to invest in staff.
There is still the positive of a rise in newer employment figures for July. Unfortunately, at this stage, it seems optimistic to hope that this is a sign of real strength, rather than a bump in seasonal employment.
Sarah Coles is head of personal finance at Hargreaves Lansdown
