What’s happening to wages in the UK?

Wages in the UK are rising at one of the fastest rates ever recorded. The amount that people earned (excluding bonuses) between June and August 2023 was 7.8% higher than the same time a year earlier, according to the latest data from the Office for National Statistics.

This means that pay is now rising faster than inflation. Consumer Price Inflation (CPI) remained stuck at 6.7% in September, unchanged from the month before.

So what does this mean for employers and their teams, and what does it tell us about the cost-of-living squeeze? 

What does this mean for workers?

Wages are now rising faster than inflation, which means that people’s money is going further. A person who earned £100 a day a year ago would be earning £107.80 today. In comparison, a weekly shop that cost £100 a year ago would cost £106.70 today. 

The data a shows a significant difference between sectors. People working in the finance industry saw the biggest pay rises at 9.6%, followed by manufacturing at 8%. Construction workers received the lowest pay rises – their wages grew by 5.7%.

While it’s good news for workers that pay is rising faster than inflation, this hasn’t been the case for a long time. Prices have been increasing faster than pay for almost two years, cutting into people’s spending power. In fact, wage growth in the UK has been low for the last 15 years. When adjusted for inflation, wages are barely higher than they were in 2008.

What does this mean for employers?

Rising wages may offer a boost for teams, improving how people feel about their employer. However they can put employers in a difficult position. 

Companies may be at risk of losing talent if they are not able to increase wages, as employees seek better paid jobs. They may also struggle to remain competitive if they need to increase prices to cover the rising cost of pay packets. 

What about the cost of living crisis?

There’s a risk that rising pay contributes to high inflation. This means the Bank of England is more likely to increase interest rates further, causing serious pain for mortgage holders.

Some 2.4 million households are due to refinance before the end of 2024, and most will be moving onto a far higher rate. A household with a typical £200,000 mortgage who fixed two years ago and is moving to a new deal today can expect their monthly payments to rocket by £451 a month or £5,412 a year.

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