Search

Wages Rise Above Inflation for First Time in Almost 2 Years

wages rise

For the first time in nearly two years, average wage growth has risen above inflation, signalling that the pressure on living expenses may be starting to ease. Between June and August, wages increased at an annual rate of 7.8%, surpassing the inflation rate during the same three-month period, which measures the rate at which price increases.

Revised data reveals that for the three months ending in July, pay outpaced inflation, marking the first time since October 2021 that wages have been ahead of prices. It’s important to note that this wage increase is an average, and it does not necessarily imply a reduction in the cost of living pressure for everyone.

The gap between public and private sectors

A significant disparity still continues between pay in the public and private sectors. According to the Office for National Statistics (ONS), public sector workers experienced a 6.8% wage growth between June and August, the largest increase since comparable records began in 2001. In contrast, the average pay rise for private sector employees was 8%.

The greatest annual pay rise was observed in the finance and business services sector, followed by the manufacturing sector.

Despite a slowdown in the inflation rate, which stood at 6.7% for the year ending in August, it remains more than three times higher than the Bank of England’s 2% target.

What’s causing the high inflation rate in the UK?

New inflation figures are set to be released on Wednesday, and it is anticipated that they will show price rises continuing to slow. Chancellor Jeremy Hunt, said: “It’s good news that inflation is falling and real wages are growing, so people have more money in their pockets.”

The Bank of England has been raising interest rates to counter inflation, but it kept borrowing costs at 5.25% last month, and in light of the most recent wage growth statistics, analysts at Capital Economics believe that rates will remain unchanged for the time being.

“Cooling labour market conditions appeared to start feeding through into an easing in wage growth in August,” said Ashley Webb, UK economist at the research firm. “That supports our view that interest rates have peaked at 5.25%.

“But as we suspect wage growth will fall only slowly, interest rates will probably stay at their peak until late in 2024.”

Job opportunities continue to decrease

The amount of job openings in the UK continued to decrease, showing a drop of 43,000 to 988,000 from July to September.

Real estate companies witnessed the most significant decline in job opportunities compared to other sectors, with a nearly 30% decrease compared to the previous three months.

Despite the overall decrease, the total number of available positions still stands at 187,000 more than what was observed in the period from January to March 2020, before the Covid pandemic impacted the economy.

As inflation subsides and employers grapple with the consequences of increased interest rates, economists predict wage rises will slow.

Comprehensive unemployment statistics set to be released next week are projected to contribute to the overall view of a less robust job market. Previous reports have already disclosed the loss of 200,000 positions over the early summer.

The freeze on personal allowances and income tax thresholds, a policy established in 2021, is draining more funds from people’s paychecks. The Institute for Fiscal Studies has cautioned that this will amount to a tax increase of £50 billion by 2028.

Furthermore, Dr. Swati Dhingra, a member of the Bank of England’s interest rate-setting committee, cautioned the BBC last week that the majority of the effects of interest rate adjustments have yet to permeate the economy, via shifts in spending and, consequently, employment.

Younger and less skilled workers may suffer

Younger and less skilled workers may ultimately bear the brunt of these developments, she suggested.

While certain sectors experienced a notable surge in average pay increases, others faced a less favourable situation, said the ONS.

For construction workers, the average wage growth was the lowest in comparison to other industries at 5.7% between June and August. 

Wage concerns weigh heavily on Alex Patrick-Smith, the executive chairman of Ketley Brick, a brick-making firm located in Dudley. He informed the BBC that following the triumph over surging energy costs, demand has currently plummeted by 30%.

At the same time, Ketley Brick’s commitment to paying the living wage, which will go up to £11 per hour in April next year, has had a knock-on effect for everyone working for the company.

“This has unfortunately arrived at a time where it’s been very, very difficult for us because demand has fallen and we’ve got this cost increase that’s put upon us,” Mr Patrick-Smith said.

But he is reluctant to let go of any members of his team, which currently stands at 64 people.

“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,” Mr Patrick-Smith said.

Final thought

The recent uptick in average wage growth above inflation offers a glimmer of hope in our complex economic landscape. While some sectors are experiencing significant wage increases, others lag behind, contributing to the ongoing disparity in public and private sector pay. Despite a slowdown in inflation, it remains a significant challenge, with the Bank of England exercising caution in managing interest rates. Job vacancies have dwindled, particularly in real estate, highlighting persistent economic challenges.

The freeze on tax thresholds raises concerns about household finances and the potential for a substantial tax increase in the future. Notably, the full impact of interest rate adjustments is yet to fully manifest, and it is likely that younger and less skilled workers may bear the brunt of these changes. In navigating this multifaceted economic environment, the resilience of businesses and the well-being of workers will be pivotal in shaping our collective economic future.

Share

Related Topics

Latest

Generative AI in Social Care

Earlier this month, representatives of thirty organisations and individuals working in Adult Social Care met at the University of Oxford, Reuben College, to discuss the benefits and risks of using ‘generative AI’ in social care.

Video Features

How Can we Level Up the UK Sustainably?

Does Democracy Require Proportional Representation?

Marking LGBT+ History Month 2024

How Can Plugging the Skills Gap Support Decarbonisation?

Subscribe to our newsletter for your free digital copy of the journal!

Receive our latest insights, future journals as soon as they are published and get invited to our exclusive events and webinars.

Newsletter Signups
?
?

We respect your privacy and will not share your email address with any third party. Your personal data will be collected and handled in accordance with our Privacy Policy.

Never miss an issue by subcribing to our newsletter!

Receive our latest insights and all future journals as soon as they are published and get invited to our exclusive events and webinars.

Newsletter Signups
?
?

We respect your privacy and will not share your email address with any third party. Your personal data will be collected and handled in accordance with our Privacy Policy.

Never miss an issue by subcribing to our newsletter!

Receive our latest insights and all future journals as soon as they are published and get invited to our exclusive events and webinars.

Newsletter Signups
?
?

We respect your privacy and will not share your email address with any third party. Your personal data will be collected and handled in accordance with our Privacy Policy.

Newsletter Signup

Receive our latest insights as soon as they are published and get invited to our exclusive events and webinars.

Newsletter Signups
?
?

We respect your privacy and will not share your email address with any third party. Your personal data will be collected and handled in accordance with our Privacy Policy.