Unemployment up, real wages way down

The squeeze is still very much in effect.

Photograph: Getty Images

The unemployment rate has risen by 0.2 per cent quarter-on-quarter, to 7.9 per cent, leaving 2.56m unemployed people in the country. That's a small increase, against a background of continued slow improvement in unemployment, but it's unfortunate nonetheless.

The uncanny strength of the labour market was the one shining light in the otherwise continuous stretch of bad economic news the chancellor has had to announce. If this is a turnaround – or even if the steadily improving jobs figures have now started to stagnate – he would be fully in the shit. Youth unemployment is also up quarter on quarter, rising 0.6 percentage points to 21.1 per cent. There are now 979,000 unemployed 16 to 24-year-olds.

The good news here (and you can rely on the DWP to highlight it) is that much of the rise in unemployment comes from a drop in the inactivity rate – the number of working-age people not in employment. That's down to 22.2 per cent, the lowest in over 20 years. The reasons behind such a drop are always murky, but they're likely to represent a mixture of people being forced back into work through the government's welfare changes and people making the decision to go back to work due to a strengthening labour market.

But that good news is buried by the growth in pay, which, at 1 per cent year-on-year, is the lowest since records began in 2001. Compared to CPI – holding steady at 2.8 per cent – that means that real wages are getting hammered. They've been steadily declining since Autumn 2009, and are now shrinking faster than they have been in a year. The squeeze is still very much in effect.