UK private sector wage growth accelerates

Wage growth in the UK’s private sector accelerated in the three months to October as inflation rose into double digits, according to data which promises to fuel an increasingly bitter stand-off between ministers and unions.

Annual growth of 6.9 per cent in regular weekly earnings, excluding bonuses, was the highest outside the pandemic period in the private sector, the Office for National Statistics said on Tuesday — although workers have seen their pay fall sharply in real terms as consumer prices have risen even faster.

Public sector workers have suffered a much bigger hit to living standards, with their earnings growing by just 2.7 per cent over the same period, one of the biggest gaps recorded between the private and public sector, the ONS said.

The figures will reinforce worries at the Bank of England, which is expected to raise interest rates again on Thursday, that a tight labour market is driving wage growth to a level that is incompatible with its 2 per cent inflation target. But they also show that this is almost entirely due to private sector wage deals. The government has argued that it cannot improve public sector pay offers, for fear of further fuelling inflation.

Jeremy Hunt, chancellor, said in response to the figures that the government’s plans would “help to more than halve inflation next year” but that this would require “some difficult decisions now”, adding: “Any action that risks embedding high prices into our economic will only prolong the pain for everyone.”

Ministers have refused to enter talks on pay with unions representing nurses and other public sector workers in the run-up to a series of strikes that will disrupt travel, healthcare and other services in the run-up to Christmas. An attempt to avert a nurses’ strike ended in failure on Monday with Pat Cullen, general secretary of the Royal College of Nursing, complaining that ministers had “walked away” from any discussion of the core issue and that her members were “not getting an extra penny”.

Neil Carberry, chief executive of the Recruitment and Employment Confederation, said: “Given the scale of disputes in the parts of the public sector and in industries where the government plays a key role, the growing gap between private and public pay awards ought to create space for negotiation.”

Tuesday’s data showed that the worsening economic outlook is starting to affect the jobs market, with vacancies falling for a fifth consecutive quarter and unemployment edging up by 0.1 percentage point from the previous quarter to 3.7 per cent.

Yael Selfin, economist at KPMG, said the data showed “expectations of lower turnover putting less pressure on employers to recruit, while employees are becoming more cautious to move jobs”.

However, this still left the jobless rate close to record lows, with one position vacant for every unemployed jobseeker. Moreover, the rise in unemployment was partly due to people who had previously dropped out of the labour market starting to look for work again — a development that will be welcomed by policymakers, after a period in which rising economic inactivity has been fuelling wage pressures.

The ONS said the economic inactivity rate fell by 0.2 percentage points on the quarter to 21.5 per cent as people aged 50-64 who had previously said they were retired began to return to the workforce.

The employment rate increased by 0.2 percentage points on the quarter to 75.6 per cent, although it still fell short of its pre-pandemic levels.