Press release

18 Jan 2022 London, GB

Low unemployment confronts falling real pay – EY ITEM Club comments

The latest jobs numbers reinforced evidence that there has been little effect from the end of the furlough scheme. And there were no inklings yet that the Omicron variant took any wind out of the labour market’s sails at the end of 2021

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Related topics COVID-19 Growth
  • The latest jobs numbers reinforced evidence that there has been little effect from the end of the furlough scheme. And there were no inklings yet that the Omicron variant took any wind out of the labour market’s sails at the end of 2021.
  • With Omicron’s impact likely to be short-lived, a still-high level of job vacancies points to unemployment staying low. But an easing in pay growth resulted in real average earnings falling in late 2021, a development which is set to worsen.

Martin Beck, chief economic advisor to the EY ITEM Club, says: 

“The latest healthy set of labour market numbers reinforced hopes that job losses arising from the end of the furlough scheme in September were offset by strong demand for workers elsewhere in the economy. Employment over the September-November period rose 60,000. Combined with a pickup in inactivity, this was enough to lower the LFS jobless rate to 4.1%, a fall of 0.4 percentage points from the previous three-month period.

“Moreover, there were no signs that the economic effects from the spread of the Omicron variant held back job creation in December. PAYE data showed the number of employees rising 184,000, an improvement on November’s (downwardly revised) 162,000 increase. An adverse effect may yet appear, but with infection numbers now falling, the EY ITEM Club expects disruption from Omicron to prove short-lived. And that job vacancies in October to December reached a new record high suggests that unemployment should stay low, supporting consumer spending in the face of rising inflation and taxes.

“Meanwhile, regular pay growth in the three months to November fell to 3.8% year-on-year (y/y) from 4.3% y/y in the previous month, reflecting, in part, a near unwinding of distortions from the furlough scheme and base effects. This means average pay fell in real terms, an unwelcome development which is likely to worsen over the next few months.”