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Pay growth hits a record high as inflation concerns mount

by LLB Editor
23rd Feb 21 12:09 pm

The unemployment rate pushed up to 5.1% in the three months to December 2020, according to ONS data released this morning.

Real pay growth hit its highest level since 2001, raising concerns of future inflation.

Laith Khalaf, financial analyst at AJ Bell, comments: “We might have a roadmap out of lockdown, but unemployment is still heading in the wrong direction and things will get worse before they get better. A cautious release from social restrictions may forestall a future lockdown, but it also serves to dampen economic activity and put jobs under pressure. The pandemic has been particularly unforgiving on the job prospects of the younger generation, with those under 25 accounting for almost 60% of the drop in payrolled employment since February 2020. Unemployment is expected to rise to almost 8% by the middle of this year, as the furlough scheme unwinds and economic reality begins to assert itself. The good news is that it’s then expected to fall back quite quickly as the economy opens up again, though clearly that is contingent on no more nasty curveballs from the virus.

“There were a few glimmers of hope in the latest figures from the labour market. Redundancies fell back, and provisional data for January showed a slight uptick in the number of payrolled employees. One signal which is both encouraging and concerning at the same time is rising wages. Nominal regular pay growth was at its highest level since 2008, and real pay growth was at its highest level since 2001. This is partly a reflection of the fact that mainly lower income jobs have been lost throughout the pandemic, but there is also underlying upward pressure on wages too. This trend is a double-edged sword. It bodes well for economic recovery, because those who have maintained their jobs and received pay rises can support activity and jobs in other sectors through spending. But it also raises the spectre of inflation, should excess demand feed through into rising prices and sustained expectations of increasing wages from workers. This is the really troublesome inflation that the Bank of England can’t just look through, unlike rebounding energy prices which we know will push up inflation in the coming months.

 

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