Record wage growth fuels fresh inflation fears

UK wages rose at a record annual pace fueling fears that inflation will remain high for longer.

Regular wages grew by 7.3% in the March to May period from last year, official figures show, matching the highest rate of growth in the previous month.

However, despite the record increase, wage growth is still lagging behind inflation – the rate at which prices rise.

The pace of wage rises has come under increasing focus from the Bank of England as it tries to curb inflation.

The Bank has raised interest rates 13 times in a row in an attempt to reduce the rate of inflation but it remains stubbornly high.

It now stands at 8.7%, above the Bank of England’s target of 2%.

The concern is that strong wage growth will increase the costs faced by companies and force them to push the price of their goods even higher.

Today’s figures show that pay rises are highest for those in better-paid sectors such as finance, and lower in retail. Business groups continue to emphasize the difficulty of finding the right workers, despite a low unemployment rate and fewer vacancies.

The government is now offering all workers a “Midlife MOT” in their careers to help those in their mid-40s and over retrain.

However, the latest figures for the month of May seem to show wage growth starting to slow. There is a possibility that those increases have already increased.

Under the cover of these record numbers, there may be a path towards a calmer inflationary period. Interest rates seem likely to rise in August, but the new inflation figures released next week will determine whether that will be a modest increase of 5.25%, or something much larger.

Despite the rapid increase in wages, they are still not rising fast enough to keep up with the rise in store prices.

Regular wages fell by 0.8% after taking into account the impact of price increases.

Ashley Webb, UK economist at Capital Economics, said strong wage growth “will not ease the Bank of England’s inflation fears”.

Last month, the Bank of England raised interest rates by more than expected, raising its key rate to 5% from 4.5%.

Mr Webb said while he expected the Bank to push rates to 5.25% at its next meeting in August, he added that “we cannot rule out” a rise to 5.5%, saying “a lot will depend” on next week’s inflation number.

Figures from the Office for National Statistics (ONS) also show that the unemployment rate rose to 4% in the latest period, up from 3.8% in the previous quarter.

The employment rate also rose to 76%, the ONS said, adding that the increase was due to more part-time employees.

Job vacancies fell for the 12th consecutive time, down 85,000 in the April to June period to 1,034,000.

The Chancellor, Jeremy Hunt, said: “Our jobs market is strong with unemployment below historical standards. But we still have about a million job vacancies, driving inflation though.”

Labour’s shadow work and pensions secretary Jonathan Ashworth said the figures were “another dismal reflection of the Tories’ economic mismanagement”.

“Britain is the only G7 country with a lower employment rate than before the pandemic and real wages have fallen again,” he added.