Pay raises fail

 

Pay rises fail to keep up with the cost of living

Average pay rises are failing to keep up with the rise in the cost of living, the latest official statistics show.

While wages rose in the year to November, they did not rise as fast as prices over the same period.

This meant that average weekly earnings - adjusted for price rises - fell for the first time since July 2020.

"Salaries are growing reasonably strongly, but some people are saying they are not feeling much better due to rising prices," the ONS told the BBC.

Regular pay, excluding bonuses and adjusted for inflation, fell 1% in November compared to the same month in the previous year.

·         £150,000 starting salaries as firms fight for staff

·         UK economy above pre-Covid levels in November

In November, the inflation rate rose to 5.1% and is expected to reach at least 6% in spring, according to the Bank of England.

The Resolution Foundation think tank said: "Real wages officially began to fall in November, and the current period of shrinking pay packets is likely to get worse before it starts to ease in the second half of 2022."

Salaries, however, are still above pre-pandemic levels. Average weekly pay, excluding bonuses, rose to £550 in November compared with £510 in March 2020.

Over the longer three-month period, between September and November, wages rose at an annual rate of 3.8%, the ONS said. That was slower than the 4.3% recorded in the three-month period between August and October many business listings.

Today's figures showed that pay increases failed to match the accelerating cost of living for the first time in over a year in November.

However, with the jobs market heating up, economists say that may be short-lived.

The latest numbers suggest that not only have the vast majority of livelihoods survived the end of the furlough scheme but - with vacancies at a record high of 1.24 million - many employers are grappling with a shortage of skilled workers.

That's been heightened by the departure of more than 400,000 people from the labor market since the pandemic started - typically those who have become students, taken early retirement, or are long-term sick.

Those factors are likely to give workers the upper hand when it comes to seeking - and getting - bigger pay raises this year.

Overall, the Office for National Statistics said that the unemployment rate fell to 4.1% - close to pre-pandemic levels.

But Shane O'Neill, from Valid us Risk Management, said: "This number, though positive, will be taken with a pinch of salt - it predates both the Bank of England rate hike and the onset of Omicron, which caused significant economic scarring."

Meanwhile, companies added 184,000 people to their payrolls between November and December, taking the total to 29.5 million business listings.

UK job vacancies soared to a record high of 1.24 million between October and December, the ONS data showed, with vacancies 462,000 higher compared with the three months before the pandemic.

Darren Morgan, director of economic statistics at the ONS, said the total number of people on payrolls was "now well above pre-pandemic levels".

He added: "New survey figures show that in the three months to November, the unemployment rate fell back almost too where it was before Covid-19 hit."

However, he said that while job vacancies had reached a new record, "they are now growing more slowly than they were last summer".

Danni Hewson, financial analyst at AJ Bell. Said this increase "could well be tied to the return to education for many young people looking to better their prospects and nervous of setting out on their career during such an unpredictable time".

"Nerves may also be playing a part in the number of over 60s choosing to stay in the workplace, some deciding to take early retirement, others perhaps waiting until the spring and summer to take on additional hours."

With job vacancies rising and the number of economically inactive growing, companies such as the insurer Phoenix Group are tailoring their job adverts to attract older applicants - by banning words such as "energetic" and "enthusiastic".

Phoenix Group, which is led by Andy Briggs - who is also the government's "business champion for older workers", believes using "younger-age stereotypical words" could deter people aged over-50 from applying for a job, according to the Daily Telegraph.

'Pay me what I'm worth'

Image caption,

Gary Palmer is the local GMB Union organizer in Eastbound

As the cost of living rises, refuse workers across the southeast want a pay boost free business listings.

They argue that HGV drivers, who are in short supply and in great demand, are better paid than the lorry drivers who work in the rubbish.

Refuse truck drivers in Eastbound have now gone on strike after the local council offered a 7% pay rise which officials described as "very generous".

But Gary Palmer, an HGV driver, and local GMB union organizer say: "It's not only the cost of living, people understand that the poor are going to work and in-work poverty is growing.

"All those points have come together and GMB members here have said: 'No, enough. Pay me what I'm worth and recognize my true value'."

The union is holding out for an offer closer to 20% and has said that if refuse drivers are not offered a "decent pay rise", they will be tempted elsewhere by higher pay packets.

"Workers right across the country have seen 10 years of flat-lining wages and it's time they saw some of the benefits that are coming to society come to them," Mr Palmer says.

The UK economy surpassed pre-Covid levels for the first time in November after recording stronger-than-expected growth.

The Office for National Statistics said gross domestic product (GDP) expanded by 0.9% between October and November.

That was higher than economists' expectations and meant the economy was 0.7% larger than in February 2020.

But there is concern growth slowed again after the spread of Omicron and the introduction of Plan B measures.

"The economy grew strongly in the month before Omicron struck, with architects, retailers, couriers, and accountants having a bumper month," said ONS chief economist Grant Finer.

"Construction also recovered from several weak months as many raw materials became easier to get hold of."

Analysts at Capital Economics said the economy was boosted by 3.5% growth in the construction sector, adding "the unusually dry weather probably helped".

It also said manufacturing output also improved and the professional sector also picked up, "apparently due to architectural and engineering activities being brought forward from December".

What is GDP?

GDP or Gross Domestic Product is one of the most important ways of showing how well, or badly, an economy is doing.

It's a measure - or an attempt to measure - all the activity of companies, governments, and individuals in an economy.

GDP allows businesses to judge when to expand and hire more people, and for government to work out how much to tax and spend.

Rising GDP means more jobs are likely to be created, and workers are more likely to get better pay rises.

If GDP is falling, then the economy is shrinking - bad news for businesses and workers.

The Covid pandemic caused the most severe recession seen in over 300 years, hurting business and employment, and forcing the government to borrow hundreds of billions of pounds to support the economy.

·       Read more about GDP here

Economists had been expecting GDP to expand by 0.4% in November.

Chancellor Rishi Sunak said the stronger growth was "a testament to the grit and determination of the British people".

But Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: "GDP almost certainly dropped in December, as households hunkered down in response to the Omicron variant."

The Omicron variant emerged at the end of November and Plan B measures were introduced on 8 December.

Mr Tombs said data such as restaurant diner numbers, transport usage, and cinema revenues "point to a pullback in consumer services expenditure" last month, while "Omicron also depressed labor supply".

However, he added: "Omicron looks set to fade almost as quickly as it arrived, thanks partly to the rapid rollout of booster jabs. As a result, we expect the government to allow Plan B rules to automatically expire on 26 January and for GDP to bounce back in February."

These figures show that the reopening and recovery of the UK economy were motoring just before Omicron struck.

The economy had for the first time regained, on a monthly basis, all the very heavy losses during the pandemic lockdowns. The business had been returning to something approaching normality after the government's decision to ax restrictions since the summer.

Monthly figures are quite volatile though and usually not provided by other countries. It is possible that the Omicron-linked hit to the economy in December could undo the impressive growth in November on the key fourth-quarter figure. Using this more usual and internationally comparable quarterly basis, it is still not certain if the UK economy has recovered these losses.

The bigger question is about the impact of Omicron. With hopes that the rapidly-spreading variant has peaked, economists are now confident it will have far less of a hit than previous Covid waves. Retailers' results over the festive period have been very encouraging.

But the response of the public and its attitude to going out and spending is the big economic unknown. And while Omicron's concern fades, the hits to disposable income from rising prices are very real.

So while the chancellor called today's GDP milestone "amazing" it's probably not the moment for celebration.

The ONS said that, on a quarterly basis, in the final three months of 2021 the UK economy will reach or surpass pre-Covid levels seen in the last quarter of 2019 if GDP grows by at least 0.2% in December and there are no downward revisions to figures for October and November.

However, several economists pointed to a bumpy road for growth in the first months of this year.

"We expect growth to slow in 2022 as it will no longer be able to simply rely on the [Covid] rebound effect to propel it," said Yael Salving, chief economist at KPMG UK.

"In addition, rising taxes and borrowing costs, as well as elevated inflation, will squeeze households' purchasing power, while the lingering effects of supply chain bottlenecks together with a persistent shortage of labor could constrain production this year."

Inflation is expected to hit 6% by spring, according to the Bank of England which raised its key interest rate in December and is forecast to lift borrowing costs again this year.

The government will raise the National Living Wage by 6.6% for over 23 year-olds in April but that is the same month when energy regulator of gem will implement the new price cap on household gas and electricity bills.

Of gem is widely expected to lift the price cap following a sharp rise in wholesale gas prices last year which forced around 20 smaller energy companies out of business.

Also from April, employers, workers and the self-employed will all pay 1.25p more in the pound for National Insurance.