UK wages grow at a record pace, nearing the inflation rate

London: Wages in the United Kingdom grew 7.8% in the three months to June, the fastest annual rate since records began, the Office for National Statistics said Tuesday.

“Coupled with lower inflation, this means the position on people’s real pay is recovering,” said ONS director of economic statistics Darren Morgan.

UK consumer prices rose 7.9% in June compared with June 2022.

The data will worry policymakers at the Bank of England, who are already concerned that strong pay growth is fueling inflation.

The central bank implemented its 14th consecutive interest rate hike earlier this month in a long-running battle to tame rising prices, taking its benchmark rate to 5.25% — the highest level since February 2008.

“With wage growth still accelerating, this supports our view that the Bank of England will deliver one more [quarter-percentage-point] rate hike before it brings its tightening cycle to a close,” said Ruth Gregory, deputy chief UK economist at Capital Economics.

However, the ONS data also showed signs that the labor market is cooling, which policymakers will welcome, Gregory added.

The unemployment rate ticked upward in the quarter to June, rising to 4.2%, but it remains low by historical standards.

Meanwhile, vacancies fell by 66,000 in the three months to July, compared with the February-to-April quarter, though they remain above 1 million.

“Job vacancies have now fallen over a quarter of a million since this time last year. However, they remain significantly above pre-Covid levels,” said Morgan at the ONS.

Against that backdrop, UK companies face growing pressure to pay higher wages to compete in the labor market.

Over the past year, 40% of employers have made a counteroffer in an attempt to keep an employee who has another job offer, according to a quarterly survey of 2,000 UK employers published Monday by the Chartered Institute of Personnel and Development.

Of those, 38% matched the salary of the new job and 40% offered even higher pay, the survey found. “The use of counteroffers is projected to increase as recruitment and retention challenges persist,” the CIPD said.

For the first time in more than a year, private sector pay growth is outstripping inflation. Average regular pay growth, which excludes bonuses, accelerated to 8.2% in the April-to-June quarter, compared with the same period in 2022, the ONS said. The Bank of England has been keeping a close eye on this measure as an indicator of domestic inflationary pressures.

Growth in average total pay for employees across the private and public sectors, which includes bonuses, also came in at 8.2%, although the ONS said the data was affected by one-off bonus payments made to healthcare workers.

The latest labor market figures offer “few signs that growing slack in the jobs market is exercising any discipline on pay growth,” said Martin Beck, chief economic adviser to the EY ITEM Club.

“Short of a major downside surprise in tomorrow’s inflation data, another [interest] rate rise in September looks very likely.”

Official data due Wednesday is expected to show that inflation slowed to 6.8% in July, according to economists.