This month the Office of National Statistics (ONS) published their figures on the UK employment and labour market. Three of the key observations from this latest update are:

  • Unemployment is down and stands at 4.0%, the lowest since Q4 1974.
  • Job vacancies are at a new time record high of 736,000.
  • Wage growth for the year-on-year 3 month average is 2.6%.

These figures are worthy of further inspection as is the impact on the credit and collections industry and how the use of technology my help to alleviate some of the pressure on P&L.

Real wages are down

Firstly, despite the shortages in staffing with job vacancies at 736,000, employers are resisting wage increases. Indeed, with inflation currently at 2.5%, and wage growth at 2.6%, real wage growth is weak. With rental and house prices increasing at rates above wage growth the disposable income of the UK population has been, and will continue to be, reduced. It is unclear whether staff shortages will trigger widespread pay rises for UK workers who have been living with low wage growth since the 2008 Financial Crisis.

August’s Labour Market Outlook survey conducted by the Chartered Institute of Personnel and Development (CIPD) found that employers’ median expectation for pay rises over the next 12 months remain at just 2%. This is about half the typical figure prior to the Financial Crisis and means that if inflation continues at its current rate real wages will fall. The reason for this reluctance to raise pay may be a result of poor productivity which is likely to effect employers’ ability to increase wages and will be especially acute in small to medium sized businesses.

With real wages currently stagnating and with the prospect of them decreasing over the next year the liquidation rates for accounts in arrears or charged off is likely to flatten out, drop off and extend. This will tighten already narrow margins still further and make such firms more prone to economic stress.

Vacancies are up

The second observation from the ONS figures is that there are fewer jobless in the economy whilst unfilled vacancies are at an all-time high. This is further compounded by significantly fewer EU nationals coming to the UK to take up work. Such staff shortages may force employers to further their use of machine learning and automation technology in order to address their labour shortfalls and the current UK productivity challenges.

Creditors and debt purchasers will need to adjust their Extended Recovery Curve (ERC) projections for lower consumer affordability with longer term liquidations. Such businesses will have to align their business models with these lower returns furthering the need for technological solutions and automation. With recovery curves extending and an uncertain medium-term outlook, it is likely that more creditors will move towards the debt sale model rather than support the long-term management costs associated with extended contingency placements.

elanevÆ provide a suite of real-time cloud based debt pricing and evaluation tools to help firms to buy, sell and value debt. This includes an ERC model to allow businesses to value and stress test their portfolios. UK employment and labour market data is included in our unique data set; elanevÆ Data. This includes time-based and trending data providing a forward-looking view of affordability and credit stress.

John Willoughby, Director, elanev Limited