U.K. Jobless Claims Fall Less than Feared as Wages Fall Short of Inflation

The number of people claiming jobless benefits fell by 20,000 in June, less than expected, while average earnings growth slowed and fell further behind inflation, the Office for National Statistics said on Tuesday.

On a more positive note, the ONS said the number of people in employment over the three-month period through May rose by 296,000, a sharp increase from 177,000 in the three months through April, and the sharpest quarterly increase in over four years.

Average earnings including bonuses rose by 6.2% on the year in the three months through May, while earnings excluding bonuses rose by a gentler 4.3%. In both cases, growth was slower from a month earlier, leaving earnings further below an annual inflation rate currently running at a 30-year high of 9.1%.

The ONS noted a sharp divergence between developments in the private and public sectors: average total pay growth for the private sector was up 7.2% in the period, while public sector pay growth was only 1.5%. The drop in real – that is, inflation-adjusted – public-sector wages points to a growing risk of strike action spreading over the summer. The U.K. has already had to face its largest rail strike in over 20 years over pay this year.

The ability of government departments to increase public-sector pay is limited by the funding they receive from the Treasury. Departmental budgets are currently determined by the autumn 2021 spending review and the Treasury has indicated that no more money will be made available for pay, despite inflation having risen more than was anticipated at the time of the spending review, according to the Institute for Government think-tank.

Sterling inched up by 0.3% after the news to trade at $1.1985, while the FTSE 100 opened down 0.3%.