Pay growth dips below cost of living

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Pay rises are failing to keep up with the cost of living as migrants and older workers boost labour supply, according to the Chartered Institute of Personnel and Development (CIPD) and KPMG’s quarterly ‘Labour Market Outlook’ survey report.

As a result, pay pressures are likely to remain subdued during the winter pay round.

The results are backed by this month’s figures from the Office for National Statistics, which show both a rise in unemployment and near record figures of employment.

Commenting on the ONS data and the Bank of England Quarterly Inflation Report, the CIPD’s chief economist Dr John Philpott said: “Growth in regular pay (excluding bonuses) is failing to keep up with the cost of living as measured by Retail Price Index (RPI) inflation – and the latest CIPD/KPMG survey suggests that the squeeze on living standards will continue into next year.

“The much expressed fear that a high and rising RPI will start to trigger big pay demands looks increasingly unfounded.

“Rephrasing Nobel Laureate Bob Solow’s famous early 1990s dictum about productivity, one hears talk of rapid wage inflation everywhere but sees no sign of it in pay statistics.

“The main underlying reason for this is the combination of high immigration and a rise in the number of home grown people entering the jobs market, especially the growing brigade of older workers, many above state pension age.

“With the size of the labour pool growing faster than labour demand, unemployment is thus set to stay on an upward path for some time to come even though, as today’s ONS figures also show, more jobs are being created.

“Gradual implicit acknowledgement that the spectre of an imminent pay-price spiral may be more imaginary than real helps in part to explain the less hawkish tone of this quarter’s Bank of England Inflation Report.

“However, while this may ease concern about the outlook for inflation a continued squeeze on living standards at a time when many people are burdened with high levels of debt could spell trouble for the economy next year, especially if interest and mortgage rates were to rise above 5 per cent.”

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