In a promising development for the UK economy, average pay growth has surged above inflation for the first time in nearly two years, offering a glimmer of relief to households grappling with soaring living costs.
Figures recently released indicate that wages increased at an annual rate of 7.8 percent between June and August, outpacing the average inflation rate over the same period.
Revised data reveals that pay overtook inflation during the three months leading up to July, marking the first time in almost two years that wages have managed to outstrip the rate of price increases since October 2021.
While this increase in wages is a welcome sign, it does not necessarily signify that the cost-of-living pressures are subsiding for everyone.
A discrepancy persists between public and private sector pay
A notable discrepancy persists between public and private sector pay. During the same June-to-August period, wage growth for public sector workers reached 6.8 percent, marking the most significant increase since comparable records began in 2001, according to the Office for National Statistics (ONS). In contrast, the average pay rises for private sector employees stood at 8 percent.
Workers in the finance and business services sectors witnessed the most substantial annual pay rise, closely followed by those in the manufacturing sector. However, the ongoing challenge remains the rate of inflation, which, despite showing signs of slowing, remained high at 6.7 percent for the year leading up to August—more than three times higher than the Bank of England’s 2 percent target.
On a positive note, new inflation figures set to be released on Wednesday are expected to indicate that price rises are continuing to decelerate. Chancellor Jeremy Hunt expressed optimism, stating, “It’s good news that inflation is falling and real wages are growing, so people have more money in their pockets.”
In response to the persistent inflationary pressures, the Bank of England has been incrementally raising interest rates in an attempt to curb inflation. Nevertheless, the Bank kept borrowing costs at 5.25 percent last month, and analysts at Capital Economics believe that rates will likely remain unchanged for the time being. “Cooling labour market conditions appeared to start feeding through into an easing in wage growth in August,” noted Ashley Webb, a UK economist at the research firm, adding, “That supports our view that interest rates have peaked at 5.25 percent. But as we suspect wage growth will fall only slowly, interest rates will probably stay at their peak until late in 2024.”
Job vacancies continue to decline
However, the picture is not entirely rosy for the UK job market. The number of job vacancies in the country continued to decline, dropping by 43,000 to 988,000 between July and September. Real estate companies faced the steepest fall in job opportunities compared to other sectors, with vacancies plummeting by almost 30 percent compared to the preceding three months.
Nonetheless, the total number of vacancies still stands at 187,000 above pre-pandemic levels seen in January to March 2020, offering a glimmer of hope for the recovery. As inflation eases and employers grapple with the impact of higher interest rates, economists anticipate that wage increases may gradually slow.
Further comprehensive unemployment figures to be released next week are expected to paint a picture of dimming job prospects. Earlier releases had already disclosed the loss of 200,000 jobs over the early summer.
Adding to the economic challenges, the freezing of personal allowances and tax brackets, a policy dating back to 2021 at which the basic and higher rates of income tax become payable, is extracting more money from pay packets. According to the Institute for Fiscal Studies, this will translate into a tax increase of £50 billion by 2028.
Dr. Swati Dhingra, a member of the Bank of England’s rate-setting committee, has cautioned that the bulk of the impact of interest rate increases has yet to ripple through the economy, affecting spending and employment. Younger and less skilled workers may ultimately bear the brunt of these changes, she warned.
What about different job sectors?
While some sectors have experienced sharp increases in average pay growth, others have not fared as well, as reported by the ONS. The construction industry, in particular, witnessed the lowest wage growth compared to other sectors, recording a rate of 5.7 percent between June and August.
Alex Patrick-Smith, the executive chairman of Dudley brick-making firm Ketley Brick, voiced concerns about wages and the broader economic climate. Despite surmounting challenges like soaring energy prices, the company now faces a 30 percent decline in demand. Additionally, their commitment to paying the living wage, set to increase to £11 an hour from next April, has placed additional pressure on the company’s employees.
Patrick-Smith expressed his reluctance to lay off any of his 64-strong team, emphasising the importance of maintaining employment levels for future success. “Without a workforce that is going to be here when we come through the other side, we’re not going to be able to produce at the level that we would like to, and so we’re doing everything we possibly can to maintain the levels of employment,” he stated.
The latest wage and inflation data provides a mixed picture for the UK’s economic recovery, offering hope for some and concerns for others as the nation navigates the ongoing challenges posed by inflation, employment, and wage growth.
Kate Palmer, HR Advice and Consultancy Director at Peninsula, says:
“Whilst this is positive news for some industries, the continued cost of living crisis and the knock-on effects of this will likely continue for many. Employees may still be looking to their employer for help in the current economic situation.
“But it is a difficult balance for businesses. Many are trying to make themselves attractive employers when compared to their competitors to retain and attract staff at a time when they could also be feeling the impact of the economy. Recruitment difficulties, for example, are still being experienced by many businesses so ideas and projects for growth may have to be shelved whilst they focus on the day-to-day.
“Creating a social safety net for employees is a focus for some employers as a way to provide support to their staff and is also something which many individuals are likely looking for in an employer. This could include offering employee benefits, including platforms where staff can access discounts and employee assistance programmes.”
Amelia Brand is the Editor for HRreview, and host of the HR in Review podcast series. With a Master’s degree in Legal and Political Theory, her particular interests within HR include employment law, DE&I, and wellbeing within the workplace. Prior to working with HRreview, Amelia was Sub-Editor of a magazine, and Editor of the Environmental Justice Project at University College London, writing and overseeing articles into UCL’s weekly newsletter. Her previous academic work has focused on philosophy, politics and law, with a special focus on how artificial intelligence will feature in the future.
Recent Comments on Stories