UK average wages rise at slower pace than inflation, causing fall in real terms

High inflation continues to erode the value of UK wages , figures released on Tuesday have shown. Growth in average total pay, which includes bonuses, was 6.5 per cent in the three months to April this year, while growth in regular pay, excluding bonuses, was 7.2 per cent for the same period, the Office for National Statistics said. For regular pay, this is the largest growth rate recorded outside of Covid-19 pandemic days, the ONS said. However, when Britain's “sticky” inflation is factored in, growth in total and regular pay fell on the year in February to April 2023 – by 2 per cent for total pay and 1.3 per cent for regular pay. The finance and business services sector had the highest regular growth rate at 9.2 per cent, followed by manufacturing at 7 per cent. The ONS said this was the highest regular growth rate in the manufacturing sector since comparable records began in 2001. “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,” said Darren Morgan, director of economic statistics at the ONS. “However, even so, wage rises continue to lag behind inflation.” The figures, which were above analysts' forecasts, are the first set to include the effect of a 9.7 per cent rise in the minimum wage, which will be closely watched by the interest rate-setting Monetary Policy Committee at the Bank of England. “The increases to minimum wage levels, up almost 10 per cent, partly account for the rise and while hugely welcome for those on low incomes, it comes at a hugely tricky time when policymakers want to see spending power reduced, not bolstered, to help bring down the rate of price increases,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown. Meanwhile, the ONS said the rate of unemployment in the UK fell to 3.8 per cent in the three months to April, from 3.9 per cent in the previous three months. Economists had been expecting it to rise to 4 per cent. The ONS also said the employment rate rose to 76 per cent in the latest quarter, slightly higher than in the previous three months, bringing the number of people in jobs to a record high of 33.1 million. A quarter of a million jobs were added to the UK economy in the quarter to the end of April. “With another rise in employment, the number of people in work overall has gone past its pre-pandemic level for the first time, setting a new record high, as have total hours worked,” Mr Morgan said. “The biggest driver in recent jobs growth, meanwhile, is health and social care, followed by hospitality.” However, the ONS noted the figures showed the economic inactivity rate had decreased by 0.4 per cent in the three months to the end of April, to 21 per cent, as the number of people “inactive because of long-term sickness increased to a record high”. “While there has been another drop in the number of people neither working nor looking for work, which is now falling right across the age range, those outside the jobs market due to long-term sickness continue to rise, to a new record,” Mr Morgan said. While figures showed an improvement, business groups said companies were still battling against a general shortage of skills. “While the number of people in work is rising and unfilled vacancies are slowly falling, the difficulties companies face when hiring is still a hard brake on growth,” said Matthew Percival, director for people and skills policy at the Confederation of British Industry. “Signs that stubbornly high inactivity is starting to fall are encouraging but a new record high number of people unable to work because of long-term sickness is a real cause for concern.” Elsewhere, analysts pointed out that while the fall in the unemployment rate and overall economically inactive numbers were promising, worrying trends remain. “Today’s figures show the UK employment rate is at a record high but they also point to underlying weaknesses that are hampering growth and living standards,” said Ben Harrison, director of the Work Foundation at Lancaster University. “Even with vacancies falling for the 11th consecutive month and economic inactivity dropping, employers are still facing worker shortages. “Despite strong public and private wage growth, inflation has resulted in workers being, on average, 1.3 per cent poorer on the year. “With a record 2.55 million long-term sick, the UK is the worst performer in the G7 for workforce participation since the start of the pandemic.”

UK average wages rise at slower pace than inflation, causing fall in real terms

While wages rose by 7.2% in the three months to April, the effect of inflation meant they fell by 1.3%