UK wage growth picks up to 11-year high

Wage growth in the UK reached an 11-year high in the year to June, and the employment rate was its joint highest since 1971, official figures show.

Wage growth rose to 3.9%, while the estimated 76.1% employment rate was the best since comparative records began.

Overall, a record high of 32.81 million people were in employment, the Office for National Statistics (ONS) said.

This was 425,000 more than a year earlier and was largely because of more people working full-time.

However, the unemployment rate in the April to June period showed a slight rise.

Figures released last week indicated that the UK's economy shrank 0.2% in the second quarter of the year, the first contraction since 2012.

What is behind the increase in wages?

Wages have been increasing at a faster pace than inflation since March 2018.

The 3.9% increase in regular pay - which excludes bonuses - was up from last month's figure of 3.6%.

Part of the reason for the rise was the unusual timing of annual pay rises for public health workers last year, when a larger-than-usual increase was deferred until July.

In real terms (after adjusting for inflation), regular pay is estimated to have increased by 1.9%.

Matt Hughes, the ONS deputy head of labour market statistics said: "Excluding bonuses, real wages are growing at their fastest in nearly four years, but pay levels still have not returned to their pre-downturn peak."

Working women behind rise in employment

The employment rate for women was 72.1% - the highest on record - and for men was 80.1%, slightly lower than the previous three-month period.

Mr Hughes added: "Employment continues to increase, with three-quarters of this year's growth being due to more women working.

"However, the number of vacancies has been falling for six months, with fewer now than there were this time last year."

The unemployment rate edged up slightly to 3.9%, which was a little lower than a year earlier.

The economic inactivity rate, which is defined as people not in employment who have not looked for work in the past four weeks or cannot start in the next fortnight, was estimated at 20.7%, a joint record low.

What has been the reaction to the figures?

Chancellor Sajid Javid said: "Every person deserves the chance to succeed and provide for their families through a steady income.

"Today's figures are another sign that despite the challenges across the global economy, the fundamentals of the British economy are strong as we prepare to leave the EU."

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the figures should silence any calls for a cut in interest rates.

"The labour market tends to lag developments in the wider economy," he said. "Firms, however, have lived with high levels of economic uncertainty for the best part of a year, and still want to fill new positions.

"In the event that Brexit is delayed further... or an agreement is reached in October and the economy starts to rebuild a little momentum, the [Bank of England's] MPC (Monetary Policy Committee) will need to move in short order to raise the bank rate again."

Tej Parikh, chief economist at the Institute of Directors, said that while the jobs market remained "a source of strength for the UK economy", it may be reaching its peak.

"As more workers have been snapped up, firms have found it harder to fill their openings. While competition has pushed up salaries, thin margins and low productivity may set a ceiling for pay growth. Although vacancies remain high by historic standards, the number has been dropping since the start of the year."

Ian Stewart, chief economist at Deloitte, said: "The days of sharply falling unemployment are behind us, but a tight labour market points to further gains in wages and spending power. Despite a second quarter decline in growth, the UK economy still has momentum."