Despite a rise in unemployment and a noticeable slowdown in the UK’s labor market, the latest official figures reveal that UK pay rises are increasing at a historic pace. According to the Office for National Statistics (ONS), total earnings for the three months ending in July 2023 were 8.5% higher compared to the same period the previous year. This surge in UK pay rises is the most significant since modern records began in 2001, except for the exceptional conditions seen during the pandemic.
The ONS noted that these earnings figures were influenced by one-time payments to NHS staff and civil servants. However, when adjusted for inflation, real pay showed an annual increase of 1.2%.
During the same three-month timeframe, unemployment saw a rise of 159,000, resulting in a 0.5-percentage-point increase in the unemployment rate to 4.3%. Employment declined by 207,000, and the number of job vacancies fell below the 1 million mark for the first time in two years.
This stark contrast between robust wage growth and the rest of the official labor market data poses a dilemma for the Bank of England as it considers whether to raise interest rates for the 15th consecutive time in its upcoming meeting next week.
Crucial Pieces of Economic Information
These employment and earnings figures represent some of the last crucial pieces of economic information for the Bank of England before it makes its decision on borrowing costs in September.
The Bank has been seeking evidence indicating a slowdown in the pace of pay settlements. However, it is also mindful that previous increases in borrowing costs have had repercussions on economic growth and employment.
Additionally, the annual average earnings for the three months ending in July play a role in calculating pension increases. According to the triple lock policy, the state pension increases in line with whichever is higher among earnings, prices, or 2.5%.
Breaking down the pay data, it’s evident that annual earnings in the private sector grew by 7.6% for the quarter ending in July, while earnings in the public sector increased by 12.2%. Regular pay, excluding bonuses, remained steady with a growth rate of 7.8%.
Chancellor Jeremy Hunt commented, “It’s heartening to see that the number of employees on the payroll remains close to record highs and that our unemployment rate is lower than many of our international peers. Wage growth remains high, partly due to one-off payments to public sector workers, but for real wages to grow sustainably, we must adhere to our plan to combat inflation.”
Darren Morgan, ONS Director of Economic Statistics, remarked, “Earnings in cash terms continue to rise, at a record rate outside the pandemic-affected period. Coupled with lower inflation, this means people’s real pay is no longer declining. Unemployment continues to increase in the latest three months. Correspondingly, employment is down, driven by declines among men and the self-employed. The proportion of people neither working nor looking for a job has slightly increased, with more students and the long-term sick reaching yet another record.”
“Meanwhile, working days lost to strikes increased in July, especially in education, with the health sector also still heavily affected. However, the overall number is still below what it was a few months ago. Job vacancies have fallen below the million mark for the first time since the summer of 2021 when the reopening of the economy created huge demand for workers. Nevertheless, they still remain significantly above pre-Covid levels.”