Average pay jumped by a record 7.3 percent in the three months to May compared to a year earlier, official figures revealed on Tuesday, but this was still below the rate of inflation.
They showed that growth in employees’ average total pay (including bonuses) was 6.9 per cent and growth in regular pay (excluding bonuses) was 7.3 per cent in March to May 2023.
For regular pay, this equals the highest growth rate, which was also seen last month and during the Covid pandemic period for April to June 2021.
But the Office for National Statistics stressed that in real terms (once adjusted for inflation), growth in total and regular pay fell on the year in March to May 2023, by 1.2 per cent for total pay and 0.8 per cent for regular pay.
The detailed figures showed that the finance and business services sector saw the largest regular growth rate at nine per cent, followed by the manufacturing sector at 7.8 per cent which was the highest regular growth rate for the manufacturing sector since comparable records began in 2001.
Average regular pay growth for the private sector was 7.7 per cent which was the largest growth rate seen outside of the pandemic period.
For the public sector the figure was 5.8 per cent, a high of nearly 22 years, with a larger growth rate last seen in September to November 2001, of 5.9 per cent.
ONS director of economic statistics Darren Morgan said: “Pay excluding bonuses has again risen at record levels in cash terms. Due to high inflation, however, the real value of weekly earnings are still falling, although now at its slowest rate since the end of 2021.
“The number of working days lost to strikes fell back to their lowest level in nearly a year, with a notable drop in public sector disruption.”
He added: “Total employment grew in the latest three months while the number of people actively looking for work also increased, both driven by men rejoining the labour market.
“While the total number of vacancies remain high, it has now been falling for a year and the pace of decline has accelerated recently.”
The pay hikes will fuel fears that Britain is in the grip of an inflation spiral.
John Choong, market and equity analyst at InvestingReviews.co.uk said: “This jobs data will translate into more pain for borrowers.
“Although the unemployment rate ticked up to four per cent in May, wage pressures are still showing no sign of easing as average weekly earnings excluding bonuses grew to 6.9 per cent from an upwardly revised 6.7 per cent. This isn’t good news for inflation or mortgage rates as it’s becoming increasingly likely that the Bank of England may now have to raise interest rates to an eye-watering seven per cent to combat a wage-price spiral.”
Ashley Webb, UK Economist at Capital Economics, said that regular pay was growing above the Bank of England’s expectations of it to fall below seven per cent.
He added “Our forecast is for the Bank to raise interest rates by 25 basis points (bps) in August, from five per cent now to 5.25 per cent, but we can’t rule out another 50bps hike. Much will depend on June’s CPI inflation data due next Wednesday.”
Jonathan Boys, labour market economist for the CIPD, the professional body for HR and people development, said:â¯â¯ “A familiar pattern is emerging: high nominal pay rises, accompanied by real terms pay cuts due to high inflation. Regular pay grew by 7.3 per cent, the highest seen by the ONS since the time series began in 2001. However, real regular pay fell by a modest 0.8 per cent.
“This dynamic will worry the Bank of England who fear a wage price spiral, but for individuals it’s cushioning the blow to living standards.”
The unemployment rate has risen above expectations while wages increased at the joint-highest rate on record, official figures revealed on Tuesday.
The Office for National Statistics (ONS) said the UK jobless rate jumped to 4% for the three months to May, from 3.8% in the previous three-month period.
Economists had predicted a reading of 3.8 per cent for the latest quarter.
Work and Pensions Secretary Mel Stride admitted that the hike in interest rates to try to combat runaway inflation, at 8.7 per cent in May, was hugely painful for homeowners facing higher mortgage bills, as well as renters whose rents are being increased.
But he told Times Radio: “But then the alternative is even more painful and that is runaway inflation and inflation is something that erodes our savings.
“It dampens down economic activity, it destroys growth, it destroys livelihoods.
“It’s a real dragon that we have to slay and we have to take the tough choices to do that.”
Pressed whether the Government should follow the recommendations of the independent pay review bodies, he added: “There is an overarching duty on Government that whatever we do we have to make sure that we keep bearing down on inflation.
“Where it comes to those areas of the economy where we can do things that ease inflation, then I think the Chancellor is absolutely right to be very robust on that in his determination to get the increase in prices moderating.”
He added on BBC Radio 4’s Today programme: “Inflation is something that impoverishes us all, it particularly hits those least well off.”
Cabinet ministers are reportedly split over pay rises for millions of public sector workers of around six per cent as recommended by the independent pay review body process.
Shadow work and pensions secretary Jonathan Ashworth said: “These figures are another dismal reflection of the Tories’ mismanagement of the economy over the last thirteen years.
“Britain is the only G7 country with a lower employment rate than before the pandemic and real wages have fallen yet again – just as more and more families feel the devastating impact of the Tory mortgage bombshell.”
Liberal Democrat Treasury spokesperson Sarah Olney said: "Month after month we see people's pay being relentlessly squeezed by inflation and it's all down to this Government's failure to manage the economy.
"With inflation spiralling, the Conservatives need to do more to get a grip on the economy that they've left in tatters.”
Meanwhile, the Commons Treasury Committee was on Tuesday grilling banks over the current state of the mortgage market, including levels of mortgage stress, arrears and forbearance, and the outlook for the market in light of higher interest rates.
The senior MPs were due to question lenders on consumer behaviour following recent rate rises, the impact on house prices and the wider housing market, and mortgage affordability and availability.
