Commenting on the labour market figures for April 2018, Suren Thiru, Head of Economics at the British Chambers of Commerce (BCC), said:
“The continued rise in employment, coupled with a further drop-in the unemployment rate, is further evidence that the UK jobs market remains in good shape, with firms continuing to recruit despite sluggish economic conditions. However, the rising number of hours worked indicates that the recent pick-up in UK productivity is likely to be short lived.
“The end of a prolonged squeeze on real wage growth is an important moment, although maintaining positive real wage growth could prove challenging without sustained increases in productivity and relieving the high upfront costs which restrict pay increases. The return to positive real wage growth is unlikely to translate into materially stronger spending in the near term with consumers expected to remain under pressure from uncomfortably high debt levels, particularly if interest rates rise further.
“Against this backdrop, ministers must do more to support firms looking to recruit and grow their business, including easing upfront business costs and plugging the growing skills gaps. Working with businesses to deliver meaningful reform to the Apprenticeship Levy, so it works better for everyone, would be a good place to start.
Commenting on the inflation statistics for March 2018, Suren Thiru said:
“Inflation slowed again in March, confirming its downward trajectory. The largest downward pressure came from clothing and footwear prices which rose by less than a year ago. The latest figures also provide further confirmation that real wage growth has returned to positive territory.
“Inflation is likely to continue easing over the near term as the impact of the post-EU referendum slide in sterling fully dissipates. The BCC’s own Quarterly Economic Survey confirms that the pressure on firms to raise prices have eased a little over recent months. That said, upward pressure from rising commodity prices could well keep inflation hovering above the Bank of England’s 2% inflation target over the short term. As a consequence, real wage growth may remain muted for some time to come.
“While interest rates are expected to rise next month, with UK economic growth likely to have slowed in the first quarter and inflation easing, the case for tightening monetary policy remains relatively weak. We’d caution against a sustained increase in interest rates as it could dampen confidence and weaken overall economic activity. More must also be done to lift confidence and growth, including addressing the escalating burden of up-front business costs.”