Wage growth reaches record high but lags behind inflation

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The ONS said average earnings, excluding bonuses, increased at 7.2 per cent over the 12 months – rising from the 6.7 per cent recorded in March

Wages have increased at their fastest pace on record outside of the pandemic but are still falling behind inflation.

The Office for National Statistics (ONS) said average earnings, excluding bonuses, increased at 7.2 per cent over the 12 months – rising from the 6.7 per cent recorded in March.

That is closer to catching up with inflation compared with past months, but still below the pace of price increases. UK inflation was at 8.7 per cent in April.

In real terms, growth in total and regular pay dropped on the year in February to April 2023, by 2.0 per cent for total pay and by 1.3 per cent for regular pay.

Wages were lifted by the 9.7 per cent increase in the minimum wage in April. Total pay, including bonuses, rose by 6.5 per cent per year in the three months to April.

In cash terms, basic pay is now increasing at its fastest since current records began, apart from the period when the figures were distorted by the pandemic. Nonetheless, even so, wage increases continue to lag behind inflation, Office for National Statistics director of economic statistics Darren Morgan stated.

Average regular pay hike for the private sector was 7.6 per cent, again the biggest growth rate outside of the pandemic period.

Public sector pay growth fell behind, increasing by 5.6 per cent, the fastest growth rate since August to October 2003 (when it increased by 5.7 per cent).

The finance and business services sector saw the biggest regular growth rate at 9.2 per cent, followed by the manufacturing sector at 7 per cent.

Alice Haine, personal finance analyst at Bestinvest, said that in spite of 12 interest rate hikes since December 2021, the cost-of-living crisis is continuing to reduce disposable incomes, with the financial struggle still very real for workers who are not only seeing their take home pay reduced by high living costs, especially surging food bills, but also now by quickly increasing borrowing costs.

It comes as the rate of unemployment dropped to 3.8 per cent during the three months to April from 3.9 per cent during the previous three months.

The number of people not working because of sickness has increased to another record high. Nearly 2.6 million people are not working because of long-term health problems.

The number of people in employment rose to a record high level during the three months to April with rises in the number of employees as well as self-employed workers.

The UK employment rate was estimated at 76 per cent from February to April, up 0.2 percentage points than November to January, as per the Office for National Statistics.

Chancellor Jeremy Hunt admitted that inflation is taking a bite out of earnings, saying that the number of people in work has hit a record high, and the International Monetary Fund and Organisation for Economic Co-operation and Development recently credited our major reforms at the Budget which will help even more back into work while growing the economy.

But rising prices are continuing to eat into people’s pay checks – so we must adhere to our plan to halve inflation this year to lift living standards, he added.

From March to May, the estimated number of vacancies dropped by 79,000 on the quarter to 1,051,000. It was the eleventh successive period that vacancies have dropped.

The ONS stated that it reflects uncertainty across industries, as poll respondents continue to cite economic pressures as a factor in holding back on recruitment.

Disclaimer: The opinions expressed by our writers are their own and do not represent the views of Getting Money Wise. The information provided on Getting Money Wise is intended for informational purposes only. Getting Money Wise is not liable for any financial losses incurred. Conduct your own research by contacting financial experts before making any investment decisions.

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