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Shoppers on Black Friday outside Debenhams department store in Manchester
High street retailers have had a difficult year with tens of thousands of workers made redundant. Photograph: Christopher Thomond/The Guardian
High street retailers have had a difficult year with tens of thousands of workers made redundant. Photograph: Christopher Thomond/The Guardian

UK workers get biggest pay rise in a decade

This article is more than 5 years old

Average weekly earnings rose by 3.3% in October despite jump in unemployment

British workers secured their biggest pay rise in a decade in October, despite a rise in unemployment that revealed cracks in Britain’s previously robust labour market ahead of Brexit.

Average weekly earnings, including bonuses, rose by 3.3% on the year, the biggest rise since July 2008 and comfortably beating forecasts by City economists.

Bumper City bonuses helped boost pay levels in the figures covering the three months to October along with inflation-busting wage increases at firms such as Amazon, where warehouse staff were handed a pay rise of at least 28% in London and 18% elsewhere.

The number of people in work across all sectors continued to swell following a 79,000 rise in employment to 32.48 million for May to July 2018 – 396,000 more than a year earlier.

But unemployment jumped by 20,000 to 1.38 million following a difficult year for retailers with tens of thousands of high street workers made redundant, often in areas with already high levels of deprivation.

The figures are expected to pressure the Bank of England, which has said it will need to raise interest rates gradually to offset wage-driven rises in inflation.

The Office for National Statistics said inflation-adjusted wages increased by 1% excluding bonuses, and by 1.1% including bonuses, compared with a year earlier – the ninth month in a row of increasing real terms pay.

However, several economists warned that the cross-currents of rising employment and unemployment made the labour market difficult to read.

A rise in the inactivity rate, which measures the number of people of working age outside the jobs market, may have disguised a large return to work by retirees who have struggled to make ends meet, which could keep wage rises subdued.

The jobs figures are also widely seen as a lagging indicator that tells the BoE more about employer demands for labour six months ago than more downbeat current trends, which could indicate that the UK’s job market hit a high watermark over the summer.

More recent figures show dramatic slowdowns in manufacturing and construction that are expected to lead to lower levels of employment and wages in the new year.

The ONS said this week that GDP increased by only 0.1% in October and was flat in the previous two months, leading some economists to warn of a potential recession next year.

Samuel Tombs, the chief UK economist at Pantheon Macroeconomics, said much of the rise was due to a 22% increase in City bonuses and wages were likely to moderate in the coming months.

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“The MPC needn’t panic and raise bank rates while the economy is visibly slowing due to the risk of a disastrous no-deal Brexit next year. A May rate hike, after a no-deal Brexit likely has been averted, remains a good bet,” he said.

An ONS regional survey found that the highest employment rate in the UK was in the south-west, although workers from Somerset to Cornwall worked the fewest hours. The lowest employment rate was found in Northern Ireland. Job creation was highest in the north-west following a gain of 67,000 and worst in the east Midlands, where 25,000 jobs were lost.

The Resolution Foundation was upbeat about the employment picture, saying that 2019 could be a better year for pay rises than this year, although the outcome of Brexit talks remained a wild card.

“While Brexit uncertainty and political paralysis are having a cooling effect on the wider economy, the labour market is proving more resilient. Britain’s tightening jobs market is delivering stronger pay rises, particularly for workers in ICT, hospitality, and real estate,” said its senior economist Stephen Clarke.

“2019 looks set to be a far better year for pay than this one. But after a pretty appalling decade, Britain remains some way off a return to the levels of real pay we enjoyed before the crash.”

Alok Sharma, the employment minister, said the statistics showed “the enduring strength of our jobs market” with employment at a record high.

“This is benefiting people across the country, with almost 400,000 more people in work in the last year. Putting more money in the pockets of working families, and showing the UK remains a great place to invest and do business,” he said.

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