Soaring bonuses for City bankers and high signing-on fees for construction and IT professionals pushed Britons’ average annual pay up by 7% in March, but most workers suffered a fifth consecutive month of falling living standards.
Without bonus payments, workers were paid an average 4.2% wage increase in the three months to the end of March, well below the 7% inflation rate recorded in the same month, according to the Office for National Statistics.
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Analysts said the UK was suffering a chronic shortage of workers after about 500,000 quit the labour market during the Covid-19 pandemic and many continental European workers left Britain following Brexit. The unemployment rate fell to 3.7%, the lowest since 1974.
Paul Dales, the chief City economist at the consultancy Capital Economics, said: “Anecdotal evidence suggests that businesses have been raising bonuses to maintain staff, so it is probably another sign of how the tight labour market is feeding into faster wage growth.”
Before the release on Wednesday of annual inflation figures for April that are expecting to show a jump of more than 9%, the Institute for Fiscal Studies said the bonus culture adopted by employers was driving a bigger wedge between the higher paid and those on low incomes.
Xiaowei Xu, a senior research economist at IFS, said earnings in the finance sector were 25% higher than in December 2019, before taking account of inflation, compared with a 15% national average earnings increase. Average earnings for accountants, lawyers and IT consultants were 21% higher in March 2022 than in December 2019.
She said the top 1% of earners saw a sharp increase in pay between February and March this year of 2.3% in cash terms, compared with 0.5% for the median earner and just 0.1% for the bottom 10% of earners.
“This exacerbates the trend towards greater earnings inequality that we’ve seen since the start of the pandemic – in contrast to the years before the pandemic, when the lowest-paid saw the biggest pay rises,” Xu said.
“The latest jump seems to reflect a rise in bonuses, and it remains to be seen whether this trend continues. If so, for all the talk about labour shortages driving up low pay, the legacy of the pandemic may be greater earnings inequality.”
The fall in employment and rise in earnings add to pressure on Bank of England officials to increase interest rates further, though the relatively low level of average wage increases and forecasts of a UK recession could stay their hand.
Illustrating the widening gap between the number of staff employers need and those seeking work or to move job, vacancies rose to a record of 1,295,000 in the three months between February and April – an increase of 33,700 from the previous quarter and a jump of almost 500,000 since March 2020.
For the first time since records began, the number of people out of work was lower than the level of vacancies after a 0.3% percentage point fall in the unemployment rate to 3.7%.
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Darren Morgan, the director of economic statistics at the ONS, said there was a rise in the number of people leaving unemployment to take up jobs and many people who had quit the labour market had returned to seek work, but it fell short of the number of needed by employers.
About 83,000 workers rejoined the jobs market in March, up from 10,000 in February and a consensus forecast by City economists of a meagre 5,000 increase.
Responding to the latest figures, the chancellor, Rishi Sunak, said: “It’s reassuring that fewer people are out of work than was previously feared, and we are helping them to keep more of their hard-earned money through tax cuts, changes to universal credit and support with household bills worth £22bn this financial year.”