Average basic wage growth in Britain has hit a record as workers continue to bargain for higher wages in an effort to ease cost of living pressures.
But average wage growth remains below stubbornly high inflation, meaning Britons’ purchasing power is still being eroded by higher prices.
While wage growth remains below the rate of price increases, it is itself a driver of inflation and will therefore lead the Bank of England to consider further interest rate hikes.
Pay increases: UK worker pay growth hit a record 7.8% in the three months to June
Wages, excluding bonuses, grew at the fastest year-over-year pace since records began at 7.8 percent in the three months to June, new data from the Office for National Statistics showed on Tuesday.
It means that a worker on £20,000 per year, or about £1,666 per month, before tax, would expect to see their pre-tax salary rise by around £130 per month on average.
Growth may be at record highs, but it remains below consumer price inflation, which was 7.9 percent in June, well above the Bank of England’s 2 percent target.
Overall, average wage growth is expected to always trend upward, but it has accelerated since early 2021, rocketing to 9.5 percent in April of that year as the economy began to recover from the coronavirus-related shutdowns. Covid.
Median salary has increased since March 2020 and accelerated more recently
Employers have also been incentivized to offer better wages in an effort to attract and retain talent in a historically tight job market, while widespread collective action has driven up wages in some industries.
The ONS says the average monthly salary in July was £2,274, up from £1,860 in February 2020 and £1,979 in July last year.
But my salary is not going up that much, whose is it?
The ONS figures also reveal disparity in wage growth by sector and by income band.
Annual growth in median pay in July was highest in the civil service sector with a whopping 14 per cent increase, reflecting a one-time cost-of-living payment of £1,500 doled out to civil servants that month.
The lowest was in the hotel and restaurant activities sector, which also happens to be the sector with the lowest overall average remuneration, with an increase of 5.6 percent.
Higher earners are also benefiting disproportionately from wage increases.
Salaries rise the most in the civil service sector
But finance and insurance remain the highest-paying sector on average.
Since June 2021, Britain’s top earners, those in the 99th percentile, have seen their median monthly salary rise from £13,391 to £15,081, an increase of 12.6%.
Britain’s poorest wage earners, those in the 10th percentile, have seen their average monthly wages rise by 10 per cent, from £680 to £748 over the same period.
It’s also worth noting that UK wage growth has generally slowed in real terms since around 2010, but has accelerated since the post-Covid reopening of the global economy and the outbreak of the Ukraine war.
How is wage growth calculated?
ONS data is based on HMRC’s Pay As You Earn real-time reporting system, which means it covers the entire population, rather than a sample of individuals or businesses.
However, it does not cover self-employment income or income from other sources, such as pensions, rental property, and investments.
For people with multiple sources of income, only income from employers is included.
The wage growth data provided by the ONS can be seen broken down by industry, but it is somewhat limited in that it does not break down the figures by age group or region.
Top earners have benefited from wage inflation more than others
What does the data mean for inflation?
BoE Governor Andrew Bailey has been warning for some time about the impact of persistent wage growth on the core rate of inflation, drawing criticism for urging restraint in his efforts to avoid a spiral of “wages- prices”.
The bank has raised the base rate 14 times in the past 18 months, taking the rate from a record low of just 0.1 percent to 5.25 percent in early August.
A faster-than-anticipated decline in inflation in June raised hopes that the BoE would not have to raise the base rate as high as expected, with forecasters at one point predicting a staggering spike of 6.5 percent.
But Tuesday’s wage data will weigh on the BoE’s Monetary Policy Committee when it meets again on September 21.
ING analysts said: ‘There are increasing signs that the UK job market is weakening, but for now the Bank of England will remain focused on stubbornly high wage growth.
“It is very likely that there will be a rise in September, but November is more of a question mark.”
However, Close Brothers Asset Management chief investment officer Isabel Albarran said the group did not believe “continued strong wage growth should worry the MPC.”
He added: ‘Wage growth typically lags both inflationary trends and labor market dynamics, and we expect to see a significant decline later this year.
“Although we don’t think the Bank of England is done rising yet, the fact that unemployment is close to the Bank’s estimates of the breakeven rate a year ahead of the Bank’s forecast should give MPC members an more confidence.”
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