Cost of living squeeze intensifies

Demand for labour remains high, despite a worsening economic outlook. Unemployment remained at historic lows in May at 3.8%.

The number of unfilled vacancies fell by 20,000 in June, but remains high, as businesses continue to have difficulties in recruiting staff.

Vacancies have now fallen for the past 3 months, implying that pressures are slightly easing. This may be an early symptom of the worsening economic outlook, or that firms are reconsidering their hiring options.

Economic inactivity remains a persistent issue for the UK labour market. A further 140,000 people of working age left the workforce in the period between April and June.

The tight labour market is driving the average weekly wage upwards. Total pay (including bonuses) is up 5.1% and regular pay is up 4.6% over the year to April 2022.

Wage growth continues to rise faster than the level at which the Bank of England believes is necessary to bring inflation back down to it’s 2% target. The data today increases the likelihood of a further interest rate rise in September

Although wage growth is positive for workers, if price increases are outstripping wages then household incomes are in decline.

The chart below, reveals that once we adjust for the impact of RPI inflation, the broadest measure of household inflation, workers are now 6.4% worse off than a year ago. This is a record contraction in household incomes. Real wages have now declined for nine consecutive months.

Click chart to enlarge

Declining household incomes are driving distinct changes to shopper behaviours. In our latest Viewpoint Report: Economic woes worsen (fast), we explore the impact falling household incomes will have on the food and consumer goods industry.