UK Wage Growth Reported Amid Cost of Living Crisis

Two women walk past the Job Centre building in Middlesbrough, United Kingdom, on Aug. 12, 2020. (Ian Forsyth/Getty Images)

Regular pay in Britain surged by 7.8 percent in the highest annual growth rate since comparable records began in 2001.

The Office of National Statistics (ONS) published the new data in its August labour market overview. The findings recorded annual growth in basic pay, which excludes bonuses, as well as total pay, at 8.2 percent (including bonuses), in the period from April to June 2023.

However, in real terms, when adjusted for inflation rate, regular pay on the year grew by 0.1 percent and total pay by 0.5 percent.

The inflation rate, which is currently at 7.9 percent, has been driving the rising cost of living in the UK and affecting the portions of Britons’ wages spent on groceries, energy, and other essentials.

Although inflation slowed since the 8.7 percent mark in May, it is still far above the government’s target of 2 percent.

Commenting on the pay growth news on X, formerly known as Twitter, minister for employment Guy Opperman said there was more to be done as Britain recovers from COVID-19 pandemic lockdowns.

“Our jobs market continues to show its strength with employment at near record levels and inactivity down by over 300,000 since the pandemic peak. Combined with falling inflation and our package of reforms to remove barriers to work, we are on the right path to drive down household costs and grow our economy,” Mr. Opperman said.

While Prime Minister Rishi Sunak said he has been “working day in and day out” trying to tackle high inflation rates for many months, British households have been dealing with rising food and energy prices.

Consumer Price Inflation

The Consumer Prices Index (CPI) captures the price change consumers pay for goods and services over time. In the 12 months to June the CPI rose by 7.9 percent, which was a welcome slowdown from 8.7 percent in May and an 11.1 percent peak last October.

Whether pay growth will overtake the rate of consumer price inflation will be revealed on Wednesday, when the ONS releases the latest CPI figures.

Rising grocery prices have been hitting British consumers, leaving them “extremely” or “very worried” about food and drink inflation, as well as rising energy bills.

The latest cost of living insights revealed that 51 percent of adults in the country said they were buying less food when food shopping in the past two weeks.

Britons also reported a surge in the cost of living, with 56 percent citing rising food costs as the reason.

In the year to June 2023, the price of food and non-alcoholic beverages rose by 17.4 percent.

Those dining out saw restaurant and cafe prices rise by 9.1 percent. While these figures represented an easing from slightly higher numbers in previous months, consumers still have to consider the high inflation rate when choosing how to spend their wages.

Prices for such goods as milk, cheese, and eggs fell slightly in May, with smaller drops in tmeat, bread, and cereal. Consumers buying sugar, jam, mineral waters, soft drinks, and juices saw a slight rise in prices for these goods.

Strong wages growth could prompt the Bank of England (BoE) to raise interest rates. In this case, mortgage payers will have to spend higher portions of their wages after their current contracts end, owing to rising interest rates.

The current benchmark by the BoE is 5.25 percent, with experts expecting another hike in September and further in 2024.

Chief economist at the BoE, Huw Pill, earlier this month admitted that rapid interest rate rises threatened to push the UK into an “unnecessary recession” and choke off economic growth.

Speaking to Parliament in June, Chancellor Jeremy Hunt acknowledged that “higher inflation and interest rates cause anxiety and concern for many families.”