A flurry of UK economic data is due out on Tuesday and Wednesday, including wage figures and the latest UK unemployment rate, which fell to 4.8 per cent in the three months to May from 5 per cent. The last figures also showed the number of job vacancies had hit 862,000, higher than it had been before the pandemic struck in March 2020.
Russ Mould, investment director at AJ Bell, said that if the figures show continued strong jobs growth that should in theory help wages.
“After all, if job vacancies are surging and firms are having to compete to attract and retain talent, then that could see workers get better terms and conditions,” he pointed out.
In May, wages surged 7.3 per cent year on year, which Mr Mould said was partly explained by heavy job losses during the pandemic and the furlough scheme’s launch in 2020.
“Plus a lot of the job losses have been among the least well-paid and gig economy workers, but some of it could – just could – be the result of staff shortages,” said Mr Mould.
The day after the jobs numbers, the Office for National Statistics (ONS) will release the latest inflation data for July. In June, inflation, based on the consumer price index, was 2.5 per cent, above the Bank of England’s 2 per cent target and the highest figure since August 2018, as energy and food costs rose.
Although for the average worker, pay is outpacing inflation meaning that they are better off in real terms, that won’t be the case for everyone, especially those who are still on furlough or have been unlucky enough to lose their job.
“Nevertheless, that trend could be good for consumer confidence, consumer spending and thus the wider economy – although central bankers will be on alert for sustained increases in pay as that can help to entrench inflation, and the usual response then is tighter monetary policy in the form of higher interest rates,” said Mr Mould.
Last week, Bank of England governor Andrew Bailey said he believed the recent surge in consumer prices will be a temporary phenomenon as the UK emerges from the pandemic.
The Bank has warned inflation will hit 4 per cent this year, higher than previously forecast and double the rate it aims for but policymakers decided to leave interest rates unchanged at 0.1 per cent.
The strength of the Covid-19 recovery was recently underlined by official figures that showed that gross domestic product (GDP) – a measure of economic output – increased by a further 1 per cent in June, creating five consecutive months of growth, following a sharp fall amid the height of the pandemic.
The economy also accelerated from 0.6 per cent growth in May, the ONS said.
However, ONS deputy national statistician for economic statistics Jonathan Athow pointed out: “GDP is still around two percentage points below its pre-pandemic peak.”