- Record Wage Growth: Annual Increase in UK Base Pay Reaches 7.8%, Highest Since 2001
- Inflationary Concerns: Strong Wage Growth Sparks Predictions of Interest Rate Hike
- Labor Market Dynamics: Unemployment Rate Rises, Employment Declines Amid High Wages
In the period from April to June, wages increased at a record annual rate, according to newly released official data.
The annual increase in base pay was 7.8%, the highest since analogous records began in 2001.
The stronger-than-anticipated increase has fueled predictions that the Bank of England will be compelled to raise interest rates once more to combat inflation.
Inflation, which measures the rate of price increase, has slowed but remains elevated at 7.9%.
Darren Morgan, director of economic statistics at the Office for National Statistics, which published the wage and employment data, stated that the most recent figures indicate that real pay growth, which considers inflation, is “recovering.”
Prime Minister Rishi Sunak stated that there is “light at the end of the tunnel” for the millions of people who are struggling with the rising cost of living.
However, wage growth is not yet exceeding the rate of inflation. Mr. Morgan stated that real wage growth was “still falling a little” by 0.6%.
Jonathan Ashworth, Labour’s shadow work and pensions secretary, stated, “These figures confirm once again that the Tories are failing working people and businesses across Britain.”
On Wednesday, new inflation figures are expected to reveal that price growth declined further in July to between 6.7% and 7%.
However, this remains significantly higher than the Bank of England’s 2% inflation target. Increased wages will heighten concerns that price increases will persist for an extended duration.
A former member of the Bank’s rate-setting Monetary Policy Committee, Sushil Wadhwani, stated that the financial markets viewed a September rate hike as a “virtual certainty”
The markets also anticipate that interest rates could reach a zenith of 6%, up from the current 5.25 percent. A few days ago, it was anticipated that rates would crest at around 5.75 percent.
Mr. Wadhwani, a member of the chancellor’s Economic Advisory Council, stated, “The critical question is how much the Bank needs to encourage the process by raising interest rates further, and I would argue that today’s news is disappointing in that it implies the Bank has more work to do.”
There are indications in ONS data that the British labor market is deteriorating. The unemployment rate increased from 4% to 4.2%, while the number of employed individuals decreased.
The Bank of England will view the decline in employment in the three months to June and the further increase in the unemployment rate as a sign that labor market conditions are cooling,” said Ruth Gregory, deputy chief UK economist at Capital Economics.
She added that because wage growth is still accelerating, she anticipates that the Bank of England will raise its key interest rate to 5.5%.
Mr. Sunak stated that another prospective increase in interest rates was a matter for the Bank. But he added, “The best way to reduce interest rates and prevent them from rising is to reduce inflation.”
At 8.2%, the private sector continued to outpace the public sector in terms of average annual wage growth. Between April and June, public sector wages grew at an annual rate of 6.2%.
The number of job openings in the United Kingdom decreased by 66,000 between May and July. However, there are still over one million open positions.
The proprietor of Masons Minibus & Coach Hire in Hertfordshire, Candice Mason, faces one of the greatest business obstacles in the difficulty of filling open positions.
She stated on the Today program, “It’s terrible.” “It’s not just me, it’s every operator I speak with; we simply cannot recruit and staff our businesses adequately.”
Ms. Mason stated that the company had raised wages to cover shifts vacated by employees who, in response to Covid lockdowns, decided they desired a better work-life balance and are therefore working fewer days.
She said, “But, of course, that created a larger need to recruit anyway.” “Since we were released from confinement, it’s been relentless. Currently, it is the most difficult aspect of the operation.
Three locks
The wage data will likely intensify the political debate over next year’s increase in the state pension, which is dictated by the so-called triple lock.
Government policy raises the state pension by the average wage growth, inflation, or 2.5% in April.
It is predicated on wage growth between May and July, which will be released by the ONS the following month. The August inflation rate is also used to determine pension disbursements. This item is published in September.
The most recent data indicate that wage growth remains relatively high and is on the rise. This is likely to spark debate regarding the prospective increase in the state pension and the distribution of government funds.
Pensioner organizations assert that the state pension remains relatively modest in comparison to that of other nations.
The employment data also revealed that the percentage of economically inactive individuals decreased to 20.9% between April and July.
Economically inactive individuals are those aged 16 to 64 who are not actively seeking employment.
During the Covid epidemic, numbers increased. On Tuesday, the ONS recorded a record 464,225 long-term illness-related inactive people.
However, the aggregate rate decreased as more individuals transitioned from economic inactivity to unemployment.
These people have actively sought job in the past four weeks or are available to start in two weeks.
