Much of the debate over the present economic situation comes down to wages growth. The waters were muddied earlier this year by Bank of England Governor Andrew Bailey when he told us this.
The governor of the Bank of England has come under fire from unions and earned a rebuke from 10 Downing Street for suggesting workers should not ask for big pay rises to help control inflation.
Andrew Bailey said he wanted to see “quite clear restraint” in the annual wage-bargaining process between staff and their employers to help prevent an upward spiral taking hold. ( The Guardian February 4th)
At the time he came under fire partly because of this.
Bailey was paid £575,538, including pension, in his first year as the Bank’s governor from March 2020, more than 18 times the UK average for a full-time employee. ( The Guardian)
As we look back I note in his press conference the day before he told us this.
Turning to inflation, UK consumer price inflation rose to 5.4% in December, well above its 2% target
and almost 1 percentage point higher than expected at the time of the November Monetary Policy
Report.
So things were already going very wrong and in response he unveiled a tiny peashooter.
Today we have increased Bank Rate by 25 basis points to
0.5%
Not really deserving of £578,000 a year was it? They gambled on “Transitory” inflation and now we are all paying the price. Looking at this morning’s release we have a World Cup football story of two halves.
Wage Growth.
Fortunately the words of the Governor have been mostly ignored.
Growth in average total pay (including bonuses) and regular pay (excluding bonuses) among employees was the same at 6.1% in August to October 2022; for regular pay this is the strongest growth rate seen outside of the coronavirus (COVID-19) pandemic period.
Indeed we have another story of two halves although not my main one.
Average regular pay growth for the private sector was 6.9% in August to October 2022, and 2.7% for the public sector; outside of the height of the pandemic period, this is the largest growth rate seen for the private sector and is among the largest differences between the private sector and public sector growth rates we have seen.
Please ignore the part which refers to the pandemic period as my rationale for reporting the figures to the Office for Statistics Responsibility remains valid. Indeed part of it was to avoid the numbers being distorted.
In fact the private-sector pay growth seems remarkably level.
The finance and business services sector saw the largest regular growth rate at 7.0%, followed by the wholesaling, retailing, hotels and restaurants sector at 6.6%.
Indeed this has been true on a monthly basis where we have gone. 6.6%, 6.7%.7%. and in October 6.7%.
The other side of the coin is being seen by the public-sector where the pay restraint has limited growth to 2.7%. No doubt that is a factor in this.
There were 417,000 working days lost because of labour disputes in October 2022, which is the highest since November 2011.
There was a flicker of light in the October figures though as for the single month wage growth rose to 3.8% for the public sector.
Also we have some estimates for November based on the tax ( HMRC) data and these look hopeful.
Early estimates for November 2022 indicate that median monthly pay was £2,181, an increase of 8.0% compared with the same period of the previous year.
I would suggest using such numbers as a general guide rather than a literal suggestion of what is to come.
Real Wages
Now we move to a second half which is a lot tougher and even the official estimate is forced to admit it.
In August to October 2022, growth in total and regular pay both fell in real terms (adjusted for inflation) by 2.7% on the year; this is slightly smaller than the record fall in real regular pay we saw in April to June 2022 (3.0%) but still remains among the largest falls in growth since comparable records began in 2001.
The problem here is the inflation measure used.
As of 21 March 2017, the Consumer Prices Index including owner occupiers’ housing costs (CPIH) became our lead measure of inflation. It is our most comprehensive measure of UK consumer price inflation.
You may note it does not say accurate or even best because it is neither. Actually due to the problems with measuring rental inflation ( which makes up around a quarter of it) the comprehensive part is not true either.The real reason for using it is shown below.
The all items CPIH annual rate is 9.6%, up from 8.8% in September.
The all items CPI annual rate is 11.1%, up from 10.1% in September.
The all items RPI annual rate is 14.2%, up from 12.6% last month.
The reason is that it gives the lowest answer for inflation and thus the higher answer for real wage growth. It is even 1.5% below the measure ( CPI) that ignores owner-occupied housing costs which is both breathtaking and convenient for the body which has driven this ( HM Treasury). If there was anyone with real moral fibre at the Bank of England they would have been pointing this out but they turn a blind eye to it
Thus even switching to the measure targeted by the Bank of England towards 4% and noting the RPI I continue with my view that real wage falls are much more likely to be in the range 4% to 5% for 2022 than anything we are officially told.
Employment and Unemployment
This is a confusing picture which starts well.
The most timely estimate of payrolled employees for November 2022 shows another monthly increase, up 107,000 on the revised October 2022 figures, to a record 29.9 million.
But that ignores the self-employed and the picture there is of improvement but with a kicker.
The UK employment rate for August to October 2022 increased by 0.2 percentage points on the quarter to 75.6% but is still below pre-coronavirus (COVID-19) pandemic levels.
We have not regained the previous level and a major factor in this has been a decline in self-employment partly due to rule changes which have flattered the payroll numbers above.
Over the latest three-month period, the number of employees increased, while self-employed workers decreased.
That statement has been a post pandemic trend.
Next up is something that can be good or bad.
The economic inactivity rate decreased by 0.2 percentage points on the quarter to 21.5% in August to October 2022
The good bit is that we were worried about issues like Long Covid raising the numbers and thus the fall is welcome. Any bad tinge comes from the idea of people feeling forced back into work, due to hard times.
The decrease in economic inactivity during the latest three-month period was driven by those aged 50 to 64 years. Looking at economic inactivity by reason, the quarterly decrease was driven by those inactive because they are retired.
I am not sure what the unemployment figures tell us these days but do not welcome rises.
The unemployment rate for August to October 2022 increased by 0.1 percentage points on the quarter to 3.7%.
More reliable is the hours worked figures. I remember thinking this time last year might bring us right back to pre pandemic levels but instead we stalled.
Total actual weekly hours worked dropped to 1.037 billion in August to October 2022, down 4.3 million on the previous 3 months. This is 15.4 million below pre #COVID19 pandemic levels.
Comment
The wages situation has played out as we both expected and feared. Inflation has considerably exceeded wage growth meaning this is the major factor in the cost of living crisis we are seeing. In relative terms we are seeing better wage growth than the Euro area but the picture is still grim meaning that feels literally like cold comfort. There is an additional factor likely to be making things worse and that is the fact that the self-employed are excluded from the official series. With their numbers shrinking it is reasonable to think that their real incomes picture would weaken the official data.
Returning to the issue of the Bank of England we see how badly 2022 has gone for it. Even if we cut it some slack on part of the energy costs rise an inflation target being exceeded by more than five times does not go with an interest-rate of 3% nor the 3,5% likely on Thursday. Also if people had taken the Governor’s advice on wages the cost of living crisis would be even worse. To be fair he did forgo a pay rise himself but there remains the issue of this that on a generic basis cannot be performance related.
The Bank of England, which has been criticised for underestimating the threat of rising inflation, last year paid out bonuses to its staff amounting to more than £23m, the Observer can reveal.