“The latest ONS data on the labour market are encouraging and reinforce the positive messages from business and consumer surveys. In particular, the economy is now adding jobs again at a rapid pace, reducing the risk of a spike in unemployment as the furlough scheme is wound down.
“The acceleration in wage growth is mostly good news. The headline figures for average earnings are distorted by the impact of the pandemic, but the ONS has estimated that the underlying growth rate is between 3.2 per cent and 4.4 per cent.
“This is the free market operating as it should. Higher wages will attract people back to work in the sectors where they are now needed most. Few would begrudge a boost for those doing what have traditionally been low-paid jobs in industries such as hospitality or social care.
“Nonetheless, rapid wage growth is also a symptom of labour shortages which could hold back the economic recovery, and will add to inflation pressures.
“The headline measure of average earnings is also the one that has been used to calculate the pay component of the ‘triple lock’ on the state pension. The latest figures suggest that this could result in an even bigger increase than the estimate of 8 per cent cited by the OBR. This strengthens the case for tweaking the triple lock this year to avoid an unintended windfall for pensioners.”
Notes to editors
Contact: Annabel Denham, Director of Communications, 07540 770 774
IEA spokespeople are available for interview and further comment.