UK wages rising at near record pace but real pay remains below inflation
Wages have grown at the fastest rate in over 20 years, yet workers are still taking a pay cut as the increase lags behind inflation.
Average earnings excluding bonuses were 6.4% higher in the three months through November than a year earlier, the Office for National Statistics (ONS) has revealed.
That is the fastest growth since 2001, excluding the pandemic, when people got big raises after returning to work from furlough.
But despite increased wages, workers are earning less. Real wages fell by 2.6% as pay failed to keep up with the increasing costs of goods.
After taking inflation into account, average pay fell by 2.6% in the year to September to November 2022, both including and excluding bonuses.
➡️ https://t.co/JtxSD4qZpz pic.twitter.com/07MVqU9MNH— Office for National Statistics (ONS) (@ONS) January 17, 2023
The most recent official figures showed inflation stood at 10.7%, meaning that people are effectively earning less.
The gap between private and public sector continued, with private employers increasing their pay by an average of 7.2% while public sector workers only saw a pay bump of 3.3%.
Meanwhile, the unemployment rate hit 3.7%, up from 3.5% in the previous quarter.
The ONS said that in the latest period the number of people out of work for up to six months rose, driven by 16- to 24-year-olds.
There was also an increase in the six- to 12-month unemployment figure, but a drop in the number of people out of work for more than a year.
ONS director of economic statistics Darren Morgan said: “In the most recent three months, employment levels were largely unchanged on the previous three months.
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“However, unemployment rose, driven by more young people who have only recently become unemployed, meaning overall there was a small increase in people actively engaged in the jobs market, whether working or looking for work.
“Vacancies fell again, though remaining at very high levels, with the number of people looking for work broadly in line with the number of jobs being advertised.
“The real value of people’s pay continues to fall, with prices still rising faster than earnings. This remains amongst the fastest drops in regular earnings since records began.”
The ONS also said there were 467,000 days lost to strikes in November. The public sector strikes come as wages there rose by just 3.3% compared to 7.2% in the private sector.
The loss in days due to labour disputes in the month is the highest since November 2011.
Chancellor Jeremy Hunt said: "Even in the face of global economic challenges, the UK labour market remains resilient with a record number of employees on payrolls.
"The single best way to help people's wages go further is to stick to our plan to halve inflation this year. We must not do anything that risks permanently embedding high prices into our economy, which will only prolong the pain for everyone."
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Ashley Webb, UK economist for Capital Economics, said the rise in wages would "only add further weight" to the case for the Bank of England to raise interest rates again, despite pay not rising in line with inflation.
Webb said the fact that the jobs market "remained tight and wage growth remained strong", would "only increase the Bank of England's fears that inflation, despite falling, is still persistent".
Simon Harvey, head of FX analysis at Monex Europe, said the rise in average earnings is likely to persuade the Bank of England to raise interest rates by 50 basis points next month.
"Following a speech by Bank of England’s chief economist Huw Pill, who last week placed increased emphasis on wage growth as a source of persistent inflation over the medium term, the Bank of England is unlikely to place too much emphasis on leading indicators of a cooling labour market before the picture becomes overwhelmingly clear across all measures," he said.
"For this reason, although today’s data alludes to a cooling in labour market conditions and a future softening in wage pressures, the Bank of England is unlikely to count its chickens before they’ve hatched. We think the consensus will remain for a 50bp hike at February’s meeting."
The UK's latest inflation figures are due to be released on Wednesday.
TUC general secretary Paul Nowak said: “Workers have been losing hundreds of pounds from their annual pay over the last year. But in the public sector, Conservative ministers are dragging their heels on meaningful negotiations. That’s why staff have had no choice but to use their right to strike to defend their pay.
“The Conservative government will not resolve pay disputes by rushing in new laws that attack the right to strike. The best way to settle disputes is around the negotiating table – and with credible pay offers that protect workers from rising prices.”