Pay growth stays at three decade high but inflation still stripping away wages
Pay growth is running at its fastest pace in over three decades and has remained unchanged for the second quarter in a row, in a sign the Bank of England may have to back a bigger interest rate hike again next month.
New figures out today from XpertHR reveal wages leapt six per cent in the three months to June, the same rate of increase in the first three months of 2023.
It means XpertHR’s wage tracker has remained at its highest level since September 1991.
A five per cent wage settlement was the most common agreement in XpertHR’s survey. Nearly one in four workers received a pay rise of at least nine per cent over the second quarter. Only three per cent had their pay frozen.
The figures add to the growing body of evidence that indicate inflation is proving very sticky in the UK.
Metrics that gauge the strength of underlying price pressures are forecast to remain elevated. Core inflation – which strips out volatile food and energy prices – is likely to hold firm at around seven per cent, as is services inflation, which the Bank of England monitors closely to inform its interest rate decisions.
Rising wages have been blamed for fuelling inflation, although ONS figures show pay growth has trailed price growth for more than a year and a half.
Sheila Attwood, XpertHR senior content manager, data and HR insights, said: “This month’s data serves as a stark reminder of how long employees have been struggling with the gulf between pay and the rising cost of living.”
“While pay awards are at their highest level since 1991, they continue to be outpaced by the UK’s high rate of inflation,” she added.
Wages tend to rise after inflation heats up due to workers responding to higher prices by demanding better pay to compensate for their loss of spending power. This can lead to inflation falling slowly due to businesses’ raising prices to offset higher fixed costs.
Some economists have blamed businesses for using the guise of inflation to beef up their profits. OECD research out last week revealed the UK has had the second largest profit increase compared to before the pandemic and that margin growth has outpaced wage growth across the rich country bloc.
Large swathes of the UK economy are receiving their first meaningful pay rise in over a decade. On some measures, real wages are still no higher than they were in 2008.
Markets think the risk of elevated staffing costs, compounded by food prices not falling as quickly as they rose, will compel the Bank of England to repeat last month’s 50 basis point increase at its next meeting on 3 August.
That would push borrowing costs to 5.5 per cent and be the 14th consecutive rate hike.