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PwC comments on ONS March 2022 labour market figures

12 Apr 2022

Jake Finney, economist at PwC, says

“The UK labour market continued its strong performance in early 2022, as unemployment fell once again to 3.8% in the three months to February, nearing a record low. However, this masks the true legacy of the pandemic - significantly higher economic inactivity rates, which increased to 21.4% in February, leaving around half a million additional people who were neither working or seeking employment compared to the start of 2021. 

Rising inactivity rates are being driven by older workers, with the 50-64 group accounting for more than half of this increase since the pandemic started. This group is suffering from higher levels of long-term sickness, with long Covid expected to be the primary new cause for this increase. We expect higher inactivity to become a permanent feature of the UK labour market, as around six in 10 of these older workers say they will not consider returning to work in the future. 

Workers are not seeing the benefits of a tight labour market. Real regular pay fell by -1% year-on-year, as nominal pay rises were unable to keep up with surging inflation rates. Lower-income workers are expected to see the sharpest fall in their wages this year, as higher earners are seeing significantly larger rises in their nominal pay packets. 

The worst is yet to come for workers. The pay squeeze is likely to tighten, with real wages expected to fall by around 2% this year as inflation rises further. Our modelling shows this could leave the average UK household around £900 worse off, while the lowest earners could see their incomes fall by as much as £1,300.”

Change in economic inactivity from pre-pandemic levels, by age group

 

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David Bowden

David Bowden

Manager, Corporate Affairs, PwC United Kingdom

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