Signs of a partial ‘return to work’ and slowing pay growth bring glimmers of good news ahead of the Budget

The jobs market has remained resilient in the face of rising interest rates and the cost-of-living crisis, with unemployment stable and wage inflation moving closer to a range the Bank of England can live with, said the Resolution Foundation in response to today’s labour market statistics release.

Demand for workers appears stable, with vacancies falling from 1.2 million last quarter to a still-high 1.1 million in the three months to February, and unemployment remaining stable at 3.7 per cent.

Meanwhile there are encouraging signs of a partial ‘return to work’: the inactivity rate of people aged 16-64 has fallen 0.2 percentage points (by 77,000) on the previous three-month period, driven by students and a fall in early retirement. But there remains a big gap to close – working age inactivity is still 488,000 higher than before the pandemic – so this will rightly be a focus of tomorrow’s Budget.

Pay growth in the private sector has continued to slow down. Pay growth measured over three-month periods has fallen from the equivalent of 8.7 per cent a year in July to 5.7 per cent a year in January.

At the same time, public sector pay growth accelerated, as past pay deals fed through, leading to a narrowing in the growth rate gap between public and private sector workers. But real pay is still falling fast for both groups – by 4.0 and 2.0 per cent a year in January for private and public sector workers respectively.

Charlie McCurdy, Economist at the Resolution Foundation said:

“The Chancellor and the Bank of England will both cautiously welcome today’s release, with early signs that labour market activity is improving and pay growth generating less inflation. But the Chancellor still has work to do to return employment back to its pre-crisis highs.”