Wage growth slows and unemployment rises - what does this mean for our personal finances? Maike Currie, VP Personal Finance, PensionBee comments.
Unemployment in the UK is at its highest level since the Covid-19 pandemic, while wage growth stands at a 3-year low. Figures out this morning from the Office for National Statistics show the jobs market is loosening with vacancies falling by 9,000 to 717,000 in the last quarter, marking the 39th consecutive quarter of falls.
Maike Currie, VP Personal Finance comments: “Unemployment of [4.8]% is now at its highest reading since October 2020 and the dark days of the pandemic, furlough and lockdowns.
Meanwhile wage growth has cooled to 4.7% (excluding bonuses) and 5% (including bonuses) - meaning our earnings are now only a whisker ahead of inflation, and falling behind the staggering rise in food prices.”
Prices, as measured by the Consumer Prices Index (CPI), rose 3.8% in the last year to August, while the cost of food rose by 5.1%, according to the Office for National Statistics. It is expected that inflation will hit 4% in September.
Currie added: “When our pay packets fail to keep up with rising prices, it tightens the squeeze on households, which is bad news for an economy reliant on confident consumers spending on goods and services.
The bleak state of the jobs market will put increasing pressure on Chancellor Rachel Reeves as she gears up for the 26 November Budget. The impact of the Chancellor’s National Insurance increase for employers at last year’s Autumn Budget, has weighed on employers’ willingness to hire and offer significant pay increases.”
Currie added that higher unemployment and cooling wage growth means the Bank of England will be looking closely at how embedded inflation is in the economy when it decides the future trajectory of interest rates, and a future rate cut could well be on the cards.
“Inflation has implications for our savings, investments and pensions as it eats away at our spending power today and in the future, eroding the worth of our original capital.
We are already witnessing how fiscal belt tightening is impacting pensions. PensionBee’s research shows half (51%) of people spoken to have either considered or already reduced or paused their pension contributions in the past year.
For too many, retirement savings are at risk as they weigh up sacrificing their future financial security to cover today’s rising costs amid paltry pay packets and a bleak jobs market.”
