There is at least one comparison with the 1970s that will please the government. Despite intense pressure on households from soaring inflation, unemployment in Britain fell in the three months to July to the lowest rate since July 1974.
At 3.6%, down from a rate of 3.8% in the three months to June, the proportion of people out of work has not been lower for almost 50 years. With a long recession on the immediate horizon and rising living costs hitting households hard, this signal of strength in the jobs market will provide at least some comfort.
However, this is where the good news ends. Despite low unemployment and job vacancies close to a record high, British workers are not seeing this tightness in the jobs market translate into pay growth anywhere near the rate of inflation.
In real terms – adjusting for the cost of living – regular pay fell by 2.8%, the biggest annual fall on records dating back 20 years. Forget warnings of a wage-price spiral (when pay growth adds to inflationary pressure): for most people the pay squeeze will make the coming winter among the toughest in living memory.
In the cost of living crisis some workers are securing stronger pay rises than others, with public sector pay growth before inflation of 2%, compared with 6% in the private sector – the largest difference the Office for National Statistics has ever reported.
For the Bank of England, rate-setters will focus on wage growth before inflation. Across all sectors of the economy, regular pay rose by 5.2%, a significantly faster rate than pre-Covid. However, it would be misplaced to focus on this figure for long.
The big worry is that the jobs market could be coming close to a tipping point, as Britain stands on the brink of a lengthy recession. Unemployment is a backward-looking indicator, while there were several worrying developments in the latest figures.
Despite the fall in the headline jobless rate, much of it was driven by a rise in economic inactivity – when working-age adults tell ONS statisticians they are neither in work nor looking for employment – amid rising long-term illness and a higher number of students. Alongside the 1.2 million people unemployed, economic inactivity rose above 9 million for the first time in seven years.
Beneath the bonnet there were also warning signals for the road ahead. After a surge to record levels in the reopening from lockdown, as employers struggled to find staff, job vacancies fell by 34,000 to just under 1.3m in August. This marked the biggest quarterly fall since mid 2020 during the first wave of Covid, and could illustrate a significant dwindling in hiring appetite.
In a sign of the falling demand for staff, employment rose by 40,000 in the three months to July – less than a third of the rise expected in a Reuters poll of economists.
With economic storm clouds gathering, the fear is the falling jobless rate may soon reverse. Faced with their own sky-high energy bills and other rising costs, as well as collapsing consumer demand as shoppers tighten their belts amid the cost of living crisis, employers may ditch their hiring plans in the months ahead.
