The new Labour government in the UK has emerged from its overwhelming election victory with a promise to return the country to its economic peak, and recent signs of rising wages provide it with a good platform to deliver on that promise.
According to data from Indeed Hiring Lab, wages in the UK rose 7 percent in the period to June. That’s almost double the rate in the eurozone, where wages rose 3.7 percent, and more than double the rate in the US, where they rose 3.1 percent.
The results deviate from the broader economic context of the three economies. According to the latest IMF forecast.
A possible explanation is probably a Raise bumpers in the British National Life Wage, the legal minimum wage that employers must pay their employees over 21 years of age.
The UK government’s mandate is to maintain the national living wage at two-thirds of the UK average wage, as recommended by its advisory body, the Low Pay Commission. This target is designed to prevent workers falling into relative poverty.
To keep pace with inflation and private sector wage growth, the national minimum wage rose by 9.8% in April, the third largest increase since its introduction in 2016. The national minimum wage minimum For 16- to 20-year-olds, the wage increase was even greater.
The Labour government under Tony Blair introduced the national minimum wage in 1999. Since then, the minimum wage in the UK has increased by 70 percent. The median wage, however, has only increased by around 20 percent during this period, suggesting a reduction in wage inequality in the UK.
The Low Pay Commission estimates that around 1.6 million people were on minimum wage or less in April last year, so raising the basic wage could have a disproportionate impact on growth.
Indeed says the National Living Wage contributed to rapid wage growth in the UK over the past year, but that’s not the whole explanation.
“The strong wage growth across all salary brackets suggests that the 9.8 percent increase in the UK minimum wage on April 1 is not the only reason for the rising wage growth, but that it is having a lasting impact on the salaries of low earners alongside industry-specific labor demand,” said Pawel Adrjan, head of EMEA research at Indeed Hiring Lab.
“With the Labour Party planning to remove age-specific pay brackets in the UK minimum wage, low-paid jobs could see a further boost.”
Labour says it will also allow the Low Pay Commission to Order for expansion to include the cost of living and thus pave the way for even more significant increases in the national subsistence level in the future.
Headaches caused by inflation
While workers are happy about a pay rise, it could pose another puzzle for politicians who are desperate to lower interest rates.
The Bank of England has its Base interest rate fixed to combat rising prices at 5.25% for almost a year.
The Consumer Price Index (CPI) achieve the bank’s goal of 2% in May. However, the central bank expects inflation to rise again in the third quarter, which is why it is waiting to cut interest rates.
At the same time, the country is losing momentum compared to the eurozone, where the European Central Bank (ECB) was the first major central bank to cut its key interest rate in June.
Any indication of a strong wage increase in the UK could prompt the Bank of England’s interest rate policymakers to scale back their already cautious interest rate ambitions.