12 September 2023

UK real wages no longer falling as earnings growth remains at record rate

12 September 2023

Wages in the UK continued to surge at a record pace and have not been outstripped by inflation for the first time in nearly two years, according to official figures.

The Office for National Statistics (ONS) said average regular weekly earnings growth remained at a record high of 7.8% in the three months to July, matching Consumer Prices Index (CPI) inflation for the first time since October 2021.

Total pay including bonuses jumped by 8.5%, meaning that it exceeded inflation for the first time since March 2022, up 0.6% with CPI taken into account.

The figures also showed that the rate of unemployment lifted to its highest level for nearly two years, at 4.3% in the three months to July, up from 4.2% in the previous three months.

Darren Morgan, ONS director of economic statistics, said: “Earnings in cash terms continue to increase at a record rate outside the pandemic-affected period.

“Coupled with lower inflation, this means people’s real pay is no longer falling.

Unemployment continues to increase in the latest three months. Correspondingly, employment is down, driven by falls among men and the self-employed.

“The proportion of people neither working nor looking for a job is slightly up, with more students, as well as the long-term sick reaching yet another record.”

Regular wages have been trailing behind inflation for nearly two years, with earnings failing to match up to sky-high rises in the cost of living.

But the record leap in earnings is also likely to raise concerns among Bank of England policymakers over a wage-price spiral and may increase pressure to raise interest rates further as they battle to bring inflation back to its 2% target.

Chancellor Jeremy Hunt said: “It’s heartening to see the number of employees on payroll is still close to record highs and that our unemployment rate remains below many of our international peers.

“Wage growth remains high, partly reflecting one-off payments to public sector workers, but for real wages to grow sustainably we must stick to our plan to halve inflation.”

The latest wage growth figures are also particularly important, as the total earnings rise is used to determine the “triple lock” guarantee for the state pension – which increases every April in line with the highest of average earnings growth in the year from May to July of the previous year, CPI inflation in September of the previous year, and 2.5%.

This means that state earnings are set to leap by 8.5% next April, although the ONS stressed the wage growth figures are subject to possible future revisions.

This would mean that a full basic state pension rises from its current £156.20 per week to £169.50, while a full new state pension – which those who have reached state pension age since April 2016 receive – would rise from £203.85 per week to £221.20, according to the Institute for Fiscal Studies.

The latest data also revealed that the number of vacancies fell below the million mark for the first time since the summer of 2021, down 64,000 in the three months to August to 989,000, although the ONS said they remain above pre-Covid levels.

More timely figures show the number of workers on UK payrolls edged 1,000 lower to 30.1 million, the ONS said.

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