The UK saw accelerated wage growth in April as employment rates rose, according to the Office for National Statistics (ONS). In the three-month period ending in April, average private sector wages (excluding bonuses) were 7.6% higher year-over-year, a record pace outside the pandemic period. Meanwhile, wages in the public sector increased 5.6%. Average compensation growth, including bonuses, also rose to 6.5%, higher than expected by analysts. Despite the growth, economists cautioned that wages have yet to catch up to the rate of inflation, which is currently at 2%. As such, the Bank of England will need to continue raising interest rates in response.
Yael Selfin, Chief Economist at KPM Extension, suggests another interest rate hike by the Bank of England next week and potentially more in the future. Meanwhile, Thomas Pugh, an economist at accounting firm RSM UK, believes the increase of a quarter of a point in interest rates at next week’s monetary policy meeting is a safe bet. Samuel Tombs, Chief Economist at consultancy Pantheon Macroeconomics, suggests wage growth has too much momentum to stall, and the Bank of England will likely need to keep raising interest rates to manage it.
While hiring has slowed over the past year, the data reveals few signs of weakness, with a further decline in the unemployment rate of 3.8% in the three months ending in April, compared to 3.7% in the previous quarter. The number of employed people has also risen to a record high, although the employment rate remains lower than before the pandemic.
However, Tony Wilson, the director of the Institute for Employment Studies, points out that more than a million vacancies remain unfilled, with nearly 1.8 million people outside the workforce who want jobs. Jane Gratton, head of people policy at the UK Chambers of Commerce, highlights that while low unemployment is a positive, the labor market remains tight and costly for employers.
Given these factors, Chancellor Jeremy Hunt emphasizes the need to curb inflation to ensure rising prices do not continue to erode people’s wages.
Additional Piece:
Many businesses now find themselves caught between growing labor shortages and rising labor costs. As the UK economy recovers from the pandemic, businesses must compete to attract workers in high-demand industries, such as finance and manufacturing. However, with many potential employees still outside the workforce due to health issues or other concerns, businesses may struggle to fill vacancies, exacerbating existing shortages.
At the same time, rising wages increase the cost of doing business for employers. With higher compensation levels come increased payroll taxes and other costs, forcing many businesses to reassess their hiring strategies and stifle growth prospects. While higher wages may seem like a positive for the overall economy, they can actually limit growth if businesses cannot afford to keep up.
To navigate these challenges, employers and policymakers must work together to develop innovative solutions that balance the needs of both workers and businesses. Initiatives such as temporary worker visas, wage subsidies, and targeted job training programs can help address labor shortages and reduce costs for companies. However, these measures must be carefully tailored to suit the unique needs and challenges of each industry to be effective.
Overall, the wage growth seen in the UK is a positive sign of economic recovery and can help boost consumer spending, but it also presents unique challenges for businesses. By working together to find creative solutions, employers and policymakers can help ensure continued growth and prosperity for all.
Summary:
The UK saw continued wage growth in the three months ending in April, with private sector wages up 7.6%, public sector wages up 5.6%, and total compensation growth of 6.5%. Despite this growth, economists caution that wages have yet to catch up with inflation, and policymakers will need to raise interest rates to manage the trend. Meanwhile, labor shortages and rising labor costs pose unique challenges for businesses as they compete to attract workers in high-demand fields. To manage these challenges, employers and policymakers must develop innovative solutions tailored to each industry’s unique needs and challenges.
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UK wage growth accelerated in the three months to April amid rising employment, underscoring the strength of the labor market but also the Bank of England’s challenge to reduce inflation.
The Office for National Statistics said average private sector wages, excluding bonuses, were 7.6% higher than a year earlier in the three-month period, the fastest pace of growth on record outside the UK. period of the coronavirus. Average wages in the public sector were 5.6% higher.
Among all employees, annualized growth in total compensation, including bonuses, rose to 6.5%, faster than analysts expected.
While wages aren’t yet rising fast enough to match the rate of increase in the cost of living for households, economists said wage growth was well above levels consistent with the Bank of England’s 2%. inflation goal, emphasizing the need for the central bank to continue raising interest rates.
“If there are still doubts about the direction of monetary policy, these data should consolidate another interest rate hike by the Bank of England next week and probably more in the coming months,” said Yael Selfin, chief economist at KPM extension.
Thomas Pugh, an economist at accounting firm RSM UK, said the data suggests a further increase of a quarter of a point interest rates at next week’s monetary policy meeting – which would have raised the BoE’s key rate to 4.75 percent – was now a “safe bet”.
Samuel Tombs, chief UK economist at consultancy Pantheon Macroeconomics, said wage growth had “too much momentum” for the monetary policy committee to stop raising rates. Although analysts had expected April’s hike in the statutory minimum wage to cause a one-time pay hike, he noted, the data showed wage growth was primarily driven by higher-paying sectors such as finance and manufacturing and could then continue. at a similar pace.
Although hiring has slowed sharply over the past year – with ONS data showing a further decline in the number of job vacancies – the data contained few other signs of weakness. A previous decline in the number of employees on payroll has been revised. The ONS said the unemployment rate averaged 3.8% in the three months to April, up from 3.7% in the previous quarter but down from last month.
Meanwhile, the number of employed people has risen to a record high, although the employment rate, at 76%, remains below its pre-pandemic level. The share of British adults choosing not to work or looking for work remains higher than before the pandemic, with no further decline in the economic inactivity rate over the past month, although it is down 0.4 percentage points from the previous quarter. 21%.
Tony Wilson, director of the Institute for Employment Studies, a research group, said there were “clear signs that weak labor supply is holding back growth,” with more than a million vacancies but 1.8 million people outside the workforce who want to work, including nearly half a million more with long-term health conditions than before the pandemic.
Jane Gratton, head of people policy at the UK Chambers of Commerce, said that while low unemployment is good, ‘the labor market continues to be incredibly tight, bringing with it further problems and costs for employers’.
Jeremy Hunt, chancellor, said the figures show rising prices “are still eroding people’s wages”, making it a priority to curb inflation.
https://www.ft.com/content/69632bc0-dec9-4a67-a9d0-cd64c4bd832c
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