UK unemployment hits 48-year low but inflation squeezes pay

May 17, 2022: Britain's unemployment rate fell to its lowest since 1974 in the first three months of this year, but soaring inflation led to the biggest annual fall in real earnings excluding bonuses since 2013, official figures showed on Tuesday.

The jobless rate dropped to 3.7% from 3.8% - below forecasts in a Reuters poll for the unemployment rate to hold steady - and the 1.257 million people out of work was less than the 1.295 million job vacancies on offer for the first time on record.

The Bank of England is watching the strength of Britain's labour market warily, as it fears that higher-than-normal pay growth is a key channel through which the current energy-driven surge in inflation might become entrenched.

"Strong bonuses in some sectors such as construction and especially finance mean that total pay is continuing to grow faster than prices on average, but underlying regular earnings are now falling sharply in real terms," ONS director of economic statistics Darren Morgan said.

Total pay in the first quarter of 2022 was up 7.0% on a year earlier - far above economists' average forecast of a 5.4% rise - while regular pay excluding bonuses rose only slightly more than expected, up 4.2%.

Adjusted for inflation, regular pay was 2.0% lower than a year ago, the biggest fall since the three months to September 2013.

Governor Andrew Bailey has said a fall in living standards is inevitable due to the energy price shock, and that a widespread push for higher pay would disproportionately benefit workers who were already in a strong position in the job market.

The labour market strength comes despite the economy stagnating in February and March. The BoE forecasts joblessness will rise as soaring energy prices sap consumer demand, causing a sharp drop in output by the end of the year.

Reuters