UK wages outpace inflation for the first time in two years – ONS

UK wages outpace inflation for the first time in two years - ONS
UK wages outpace inflation for the first time in two years - ONS

Official figures from the Office for National Statistics (ONS) indicate that UK wages have outstripped inflation for the first time in almost two years.

Regular earnings surged by 7.8% in the three months from June to August, resulting in a 0.7% increase when adjusted for Consumer Prices Index (CPI) inflation.

Revised data from the ONS revealed that annual growth in regular pay, excluding bonuses, exceeded CPI inflation by 0.1% in the preceding three months to July, initially estimated as flat real earnings growth.

This development marks the first time that wages have grown faster than prices since October 2021.

UK’s rising wages

Chancellor of the Exchequer Jeremy Hunt expressed optimism about the falling inflation and increasing real wages, emphasizing the importance of adhering to the plan to halve inflation.

This news comes as a relief to workers who have faced the erosion of their purchasing power due to high inflation for nearly two years.

Wages are currently surging at levels not seen outside of the pandemic-influenced period, with regular pay rising by a revised high of 7.9% in the three months to July.

The ONS reports that inflation is also easing, declining to 6.7% in August from its peak at 11.1% in October the previous year.

The latest official figures are expected to indicate another decrease to 6.6%. Total wages, including bonuses, increased by 8.1% in the three months to August, influenced by one-off payments to NHS and civil service employees.

When adjusted for CPI inflation, real total wages were 0.8% higher.

In the public sector, pay grew by 6.8% in the three months to August, one of the highest growth rates since records began in 2001.

However, it still lagged behind the private sector, which experienced an 8% increase.

On the other hand, there were mixed results in the broader employment sector, with provisional real-time data indicating a decrease of 11,000 UK workers on payrolls to 30.1 million in September.

The ONS also revised down its estimate for the previous month, suggesting a fall of 8,000 payroll workers in August compared to July.

The number of job vacancies also declined to 988,000 in the three months to September, marking the 15th consecutive quarterly decrease.

Compared to the same period the previous year, vacancies were 256,000 lower between July and September.

The ONS postponed the publication of the more comprehensive Labour Force Survey data, which reveals employment and unemployment rates for the three months to August, until October 24 due to concerns about the survey’s response rate.

While the rise in real wages offers some respite, the Unite trade union noted that it would be “small respite” for many workers, highlighting the long-term erosion of wage values over more than a decade.

Samuel Tombs at Pantheon Macroeconomics suggested that the slight deceleration in wage growth would likely encourage the Bank of England to refrain from further interest rate increases.

He anticipates the Bank holding rates at 5.25% until the spring of the following year and then gradually reducing them to around 4.5% by the end of 2024.