(qlmbusinessnews.com Thurs, 19th Oct, 2023) London, UK —
UK Workers Celebrate as Wages Overtake Inflation for the First Time in Nearly Two Years.
In a positive turn of events for the UK workforce, average pay growth has surpassed inflation for the first time in almost two years. Recent figures indicate that wages increased at an annual rate of 7.8% between June and August, outpacing the rate at which prices rose over the same period. This development implies that the financial pressure on the cost of living could be starting to ease.
Revised data also shows that pay overtook inflation during the three months to July, marking the first time this has occurred since October 2021. However, it's essential to remember that this increase in wages represents an average and does not mean that everyone is experiencing a reduction in the cost of living.
The disparity between public and private sector pay continues to be significant. Public sector wage growth reached 6.8% between June and August, the largest increase since comparable records began in 2001, as reported by the Office for National Statistics. In contrast, private sector employees saw an average pay rise of 8%.
Workers in the finance and business services sector observed the most substantial annual pay rise, followed by those in the manufacturing industry.
While the rate of inflation has been slowing, standing at 6.7% for the year ending August, it remains more than three times higher than the Bank of England's 2% target.
New inflation figures are expected to be released shortly, which should show that price increases are continuing to decelerate.
Chancellor Jeremy Hunt welcomed the news, stating, “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 in an attempt to combat inflation. However, following the latest wage growth data, analysts at Capital Economics believe that interest rates will not increase any further 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.”
Meanwhile, the number of job vacancies in the UK has continued to decline, falling by 43,000 to 988,000 between July and September. Real estate companies witnessed the sharpest decrease in available jobs compared to other industries, with vacancies dropping by almost 30% compared to the previous three months.
Despite the overall decline in figures, the total number of vacancies remains 187,000 higher than what was observed between January and March 2020, before the Covid pandemic impacted the economy.
As inflation abates and employers grapple with the implications of higher interest rates, economists expect wage increases to slow down. In the coming week, more comprehensive unemployment figures are expected to provide a clearer picture of diminished job prospects. Previous releases have already indicated the loss of 200,000 positions over the early summer.
The freezing of personal allowances and tax brackets, a policy dating back to 2021, is also draining more money from pay packets. By 2028, the Institute for Fiscal Studies has warned that this will equate to a tax increase of £50 billion.
Furthermore, Dr Swati Dhingra, a member of the Bank of England's rate-setting committee, cautioned last week that most of the impact of interest rates has yet to filter through the economy, affecting spending and employment. It may ultimately be younger and less skilled workers who are the hardest hit.
While certain sectors have experienced a significant increase in average pay growth, others have not fared as well. The ONS reported that average wage growth for construction workers was the lowest compared to other industries, standing at 5.7% between June and August.
Alex Patrick-Smith, the executive chairman of Dudley brick-making firm Ketley Brick, expressed his concern about wages. He mentioned that after overcoming soaring energy prices, demand for his business has now fallen by 30%. Despite this, Ketley Brick remains committed to paying the living wage, which is set to increase to £11 an hour from next April. This commitment has had a knock-on effect on all employees throughout the company.
Mr. Patrick-Smith highlighted his reluctance to lay off any of his 64-strong team, noting, “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.”
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