The total of people out of work in the UK has fallen to its lowest since 2006 with the employment rate equalling its highest figure since records began 46 years ago.

Record numbers of job vacancies

Figures from the Office for National Statistics (ONS) on Wednesday also showed that a record number of vacancies were on the books.But, as anticipated, wage increases are beginning to fall behind inflation: in the three months to February, pay growth, excluding bonuses, stood at 2.2 per cent, just behind the month's inflation figure of 2.3 per cent. Taking the month of February alone, regular pay growth was just 1.9 per cent, although those receiving bonuses saw pay rises of 2.9 per cent.With inflation expected to reach three per cent later this year, economists fear consumer spending – the prime mover behind the nation's solid economic performance – could be adversely affected.

A record high in work

However, on the jobs front, all the news appeared much better than many had been predicting after the Brexit vote. The jobless total was down 45,000 in the quarter to February to 1.56 million, a reduction of 141,000 on a year earlier.Meanwhile, the number in work rose by 39,000 to a new high of 31.8 million, representing an employment rate of 74.6 per cent, the joint highest since records began in 1971.And vacancies were up by 16,000 to a record 767,000, with particularly strong demand from the accommodation and food services sectors.

Concerns over the rise in inflation

Rachel Smith, CBI Principal Labour Market Economist, said, “It’s good to see more people in work, and with the level of vacancies the highest on record, access to the right skills remains a key challenge.“With inflation rising, real pay growth has fallen back for the third month in a row now. This remains a concern, so it’s vital that productivity increases if we are to see earnings head up.“Developing a modern industrial strategy, making the most of a skilled workforce that delivers across the UK, will be key to helping firms give productivity a meaningful boost.”

Real growth rate in pay is almost zero

David Freeman, senior ONS statistician, said, “A joint record employment rate and a new record high for the number of vacancies point to continued strength in the labour market. However, higher inflation, coupled with subdued earnings increases, means that the real growth rate in pay has tailed off to just above zero (on an annual basis).”Work and Pensions Secretary Damian Green said, “This is yet another strong set of figures, with unemployment at a rate that hasn't been beaten since the 1970s and more vacancies than ever before.“More people are finding full-time jobs and average wages have grown yet again, meaning more families have the security of a regular wage.“However, there is always more to do. That's why we're creating a welfare system that rewards work through Universal Credit, which helps claimants keep more of the money they earn.”

Slowdown in consumer spending

Andrew Sentance, senior economic adviser at professional services firm PwC, said, “With inflation expected to pick up further over the course of this year, this squeeze on consumer purchasing power is likely to intensify.“Both the employment and wage figures, therefore, point to a slowdown in consumer spending, which is already apparent from the retail sales data for the early months of this year.”John Salt, group sales director at job site Totaljobs, added, “The continuing fall in the UK’s unemployment rate is an encouraging sign for the state of the job market. Despite concerns over Brexit and rising costs amid a weak pound, many sectors have seen increasing business activity, which has been reflected in the number of staff they are looking to hire.“Our most recent Totaljobs Employment Index also reflected the strength of the job market, with applications up 32 per cent in the first three months of 2017 compared with the same period last year. Jobs are also up 13 per cent year-on-year in the month of March, another sign of the market’s strength.  

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• Plunge in number of EU citizens seeking work in Britain

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Gerwyn Davies, labour market analyst at the Chartered Institute for Personnel and Development (CIPD), concluded, “The latest jobs data suggests that employment and wage growth are running out of steam. Year-on-year living standards fell in February for the first time since 2014, due to the slower earnings growth and rising inflation we’ve seen during the past six months.“It seems highly likely that the annual rate of wage growth will fall in the coming months with inflation predicted to continue to rise during 2017. This is perhaps no surprise given the UK’s ongoing productivity crisis, which limits the ability of employers to increase pay.“At the same time, low pay growth may also be a sign that employers are seeking to offset the impact of increasing labour costs, such as last week’s Apprenticeship Levy and the latest National Living Wage increase. “The squeeze on pay may explain why there is greater demand for full-time employment and extra hours in today’s data and points to a labour market where supply is becoming more constrained, rather than a lack of demand. Overall, the data will heighten fears that the living standards of British workers will fall this year, which will curb consumer spending.“As the Bank of England has pointed out recently, the solution to the problem lies in improving the management practices and processes of laggard employers. And there is little to suggest this situation will improve unless the forthcoming industrial strategy provides greater support for SMEs and employers and government invest more heavily in the skills of the UK’s adult workforce.”For related news and features, visit our HR section.Access hundreds of global services and suppliers in our Online Directory  Get access to our free Global Mobility Toolkit

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