Yahoo Finance Wage growth jumps to record high but still behind inflation
Gap between pay rises and the rate of inflation is shrinking fast
Wages have grown at their fastest pace on record outside of the pandemic but are still lagging behind inflation.
The Office for National Statistics (ONS) said average earnings, excluding bonuses, grew at 7.2% over the 12 months – up from the 6.7% recorded in March.
That’s closer to catching up with inflation than in past months, but still below the pace of price rises. UK inflation was clocked at 8.7% in April.
In real terms, growth in total and regular pay fell on the year in February to April 2023, by 2.0% for total pay and by 1.3% for regular pay.
Read more: Trust in supermarkets falls to nine-year low as shoppers feel 'ripped off'
Wages were boosted by the 9.7% rise in the minimum wage in April. Total pay, including bonuses, grew by 6.5% per year in the three months to April.
“In cash terms, basic pay is now growing at its fastest since current records began, apart from the period when the figures were distorted by the pandemic. However, even so, wage rises continue to lag behind inflation,” ONS director of economic statistics Darren Morgan said.
Average regular pay growth for the private sector was 7.6%, again the largest growth rate seen outside of the pandemic period.
Public sector pay growth lagged, growing by 5.6%, the fastest growth rate since August to October 2003 (when it rose by 5.7%).
The finance and business services sector saw the largest regular growth rate at 9.2%, followed by the manufacturing sector at 7%.
Alice Haine, personal finance analyst at Bestinvest, said: "Despite 12 interest rate rises since December 2021, the cost-of-living crisis is continuing to dent disposable incomes, with the financial struggle still very real for workers who are not only seeing their take home pay eroded by high living costs, particularly soaring food bills, but also now by rapidly rising borrowing costs"
It comes as the rate of UK unemployment fell to 3.8% in the three months to April from 3.9% in the previous three months.
The number of people not working due to sickness has risen to another record high. Around 2.6 million people are not working due to long-term health problems.
The number of people in employment increased to a record high in the three months to April with increases in both the number of employees and self-employed workers.
Headline indicators for the UK labour market for February to April show:
▪️ employment was 76.0%
▪️ unemployment was 3.8%
▪️ economic inactivity was 21.0%
➡️ https://t.co/0xoO5q1pRh pic.twitter.com/mwVYesFs9l— Office for National Statistics (ONS) (@ONS) June 13, 2023
The UK employment rate was estimated at 76% from February to April, 0.2 percentage points higher than November to January, according to the ONS.
Read more: Interest rates: Bank of England policy-maker hints at further rises
Chancellor Jeremy Hunt acknowledged that inflation is taking a bite out of earnings, saying: "The number of people in work has reached a record high, and the IMF and OECD recently credited our major reforms at the Budget which will help even more back into work while growing the economy.
"But rising prices are continuing to eat into people’s pay checks – so we must stick to our plan to halve inflation this year to boost living standards."
From March to May, the estimated number of vacancies fell by 79,000 on the quarter to 1,051,000. It was the 11th consecutive period that vacancies have fallen.
The Office for National Statistics said it reflects “uncertainty across industries, as survey respondents continue to cite economic pressures as a factor in holding back on recruitment”.
Jack Kennedy, UK economist at global hiring platform Indeed, commented: “Though worker shortages have eased, with vacancies falling for the eleventh consecutive month in May, they are likely to remain a long-term issue. Inactivity among working age people remains almost 350,000 above its pre-pandemic level despite having dropped nearly 300,000 from its peak last summer. Inactivity due to long-term sickness remains a key concern, hitting a new record high in the latest period at over 2.5 million."
Buoyant labour market stats this morning, including fastest cash increase in wages since records began (outside pandemic) will bolster any intentions the Bank of England has to raise rates next week. https://t.co/zziUoNqJ8s
— Alistair McQueen (@HelloMcQueen) June 13, 2023
The figures add pressure on the Bank of England to keep raising interest rates to avoid an inflationary spiral.
Yael Selfin, chief economist at KPMG UK, said the UK’s “Continued strength in pay growth” will warrant higher interest rates”.
She said: "The pickup in regular pay growth is the latest sign that inflation is driving up pay demands, which in turn is making inflation stickier. With negative productivity growth, these figures are well above the levels consistent with the 2% target.
“If there was still any doubt about the direction of monetary policy, these data should solidify another interest rate increase from the Bank of England next week, and probably more in the coming months.”
Watch: How does inflation affect interest rates?
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