UK real wages are shrinking again, as jobless rate hits 42-year low – business live

The latest stunning developments from the Trump White House are likely to weigh on the US stock market today.

The Dow Jones industrial average, and the wider S&P 500 index, are both expected to fall by around 0.5% when trading begins in around one hour.

FXTM Research Analyst Lukman Otunuga says “a feeling of unease” has gripped the markets today, pushing shares down in Asia and Europe.

With the latest bombshell developments in the Trump saga seen as an obstacle that may delay the proposed fiscal spending further, Wall Street should follow the bearish cues from Asian and European markets this afternoon.

The pound has gained half a cent today, to $1.296, as traders applaud the latest rise in UK employment.

Sterling is also benefitting from the political upheaval on the other side of the Atlantic, following those reports that Donald Trump had pushed former FBI director James Comey to drop investigations into Michael Flynn, former national security advisor.

The pound hasn’t traded over $1.30 since last September.

Chris Saint, senior analyst at Hargreaves Lansdown, says:

The $1.30 level is again coming into sight, with the dollar weighed down by worries that President Trump could find it trickier to forge ahead with his intended economic reforms amid reports of interference into an FBI investigation into links between his campaign team and Russia.

Britain’s poor productivity and weak pay are inextricably linked, argues the CBI, which represents UK businesses.

To get wages higher, firms need to boost their output — and the key is to boost research and development spending. UK R&D is equivalent to just 1.7% of gross domestic product today; the CBI is pushing the government to set a target of 3%.

Alpesh Paleja, CBI Principal Economist, says:

“Rising employment continues to reinforce the importance of the UK’s flexible labour market.

“However, weakening productivity and slower pay growth, coupled with rising inflation, will continue to squeeze real household earnings.

“Therefore maintaining the UK’s reputation as a great place to do business, for example by increasing R&D spend to 3% of GDP by 2025, will help boost the UK’s productivity. This is the only sustainable route to higher wages, and better living standards.”

If Britain’s jobless rate is really at a 40-odd year low, why doesn’t it feel like a nation at full employment?

Our economics editor Larry Elliott has highlighted three reasons:

One reason for the weakness of earnings growth is the ferocious squeeze on public sector pay, which – stripped of bonus payments – is rising at just 1.3% a year.

A second factor is that employers are able to buy in cheap labour from overseas. Migration from other EU countries has not fallen off a cliff despite the result of last summer’s referendum: according to the Office for National Statistics, the number of non-UK nationals from the EU working in the UK rose by 171,000 to 2.32 million between the first quarter of 2016 and the first quarter of 2017. This continues a trend, which has seen the number of workers from the other 27 EU countries double since the recession of 2008-09.

Finally, the nature of work seems to have changed. Work by David Blanchflower, Rui Costa and Stephen Machin has shown that earnings growth for the self-employed – who account for 15% of the workforce – has been particularly weak in recent years. People are working flat out in the gig economy but still struggling to make ends meet. The labour market has, for want of a better word, been Uberised.

New productivity figures have also been released this morning, and they’re a shocker.

Productivity across the UK economy shrank by 0.5% in the first three months of 2017, the first fall since the end of 2015.

It’s because the UK economy took on more workers, who worked longer hours, but didn’t deliver a corresponding rise in economic output.

The decline fall in real wages is particularly painful for workers, because pay packets hadn’t clawed back all the losses since the financial crisis.

Britain’s wage squeeze threatens to undermine the economic recovery, warns Suren Thiru, head of economics at the British Chambers of Commerce.

If the disparity between pay and price growth continues to increase as we predict, household spending is likely to slow further, weakening overall economic activity.

“The next government must do more to close the skills gap, including improving the transition from education to work by guaranteeing universal experience of work in all schools for under 16s, and delivering a future immigration regime based on economic need, rather than an arbitrary migration target. This will help firms compete on the global stage, boosting UK productivity and growth.”

Dutch bank ING says that Britain enjoyed an “astonishing” jump in employment last month.

The real standout in today’s UK jobs report was the surge in employment growth. The three month on three month average came in well above consensus at 122k, lifted by a huge 340k “single month” increase in jobs – the highest in 2 years.

This is hard to square given recent survey data, which suggests the outlook for hiring is more muted.

But they’re concerned by the fall in real wages, which is likely to prevent an interest rate hike before 2019.

It’s also hard to ignore the fact that wages are now growing at a noticeably slower pace than prices. The key measure of wage growth, which excludes bonuses, came in at 2.1%. When taken together with yesterday’s acceleration in inflation to 2.7%, real wages are now falling. We’ve already seen measures of consumer activity slow through the first quarter.

Here’s Professor Geraint Johnes, Director of Research at the Work Foundation, on today’s jobs figures:

“The latest employment figures indicate remarkably strong performance, with unemployment falling by 53000 over the first quarter of the year to a rate of 4.6%. Indeed, unemployment has fallen in every region except London and the South East. This has been primarily due to a large increase in the number of full-time employees in employment (some 196000 across the UK). The number of part-time employees has meanwhile fallen (by 61000). There has been little change in the number of self-employed workers over the quarter.

“On pay, the data are less encouraging. In the first quarter of the year, the year-on-year growth in total pay amounted to 2.4%. This is below the current rate of price inflation and indicates a renewed squeeze in real pay. The pay data indicate a collapse in wage settlements in the construction industry, and this is significant because much of the employment growth in the last part of 2016 came from that sector. While welcoming the strong employment growth evidenced in the first quarter’s figures, sustaining this into the longer term may therefore prove challenging.”

Britain is still creating jobs. It just isn’t paying people enough to protect them from the rising cost of living.

Today’s labour market report shows that the number of people in work in the UK increased by 122,000 in the 3 months to March 2017 to 31.95 million.

Around 200,000 full-time jobs were created, while the number of part time jobs fell by 78,000.

This drove the employment rate to a new record high of 74.8%.

This chart shows how the gap between inflation (2.7% in April) and basic pay growth (2.1% in January-March) has widened, driving real wages into the red.

Including bonuses, wages rose by 2.4% year-on-year, thanks to “bonuses in the finance and insurance sector”.