In response to today’s UK labour market figures, John Hawksworth, chief economist at PwC, commented:
"The UK economy remains a great job creating machine with the employment rate rising to yet another record high of 75.3% in the three months to July.
"The unemployment rate also fell again to just 4.3%. This is some way below the levels seen before the financial crisis and slightly below the Bank of England's latest 4.5% estimate of the equilibrium rate of unemployment at which labour shortages might start to push up wage inflation.
"So far, however, there is little sign of this, with earnings growth remaining unchanged from last month at 2.1%, well below the latest inflation reading of 2.9%. So real wages continue to be squeezed, which corresponds to relatively weak productivity growth as strong jobs growth contrasts with modest GDP growth so far this year.
"This could start to change as the public pay cap is gradually eased for some workers and as labour shortages do eventually cause private sector wages to edge up. But this seems unlikely to push real wage growth back into positive territory until later next year at the earliest when the effects of the weak pound on inflation may begin to fade."
For more detailed analysis of why low unemployment has not yet pushed up wage inflation, see this recent economics blog.
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