UK wages have risen at a record annual pace, fuelling fears that inflation will remain high for longer. Official figures from the Office for National Statistics (ONS) show regular pay grew by 7.3% in the March to May period compared to a year earlier, equalling the highest growth rate recorded last month. Despite this record increase, pay rises still lag behind inflation, which currently stands at 8.7%, well above the Bank of England's 2% target.
The Bank of England has raised interest rates 13 times in a row to curb inflation, but it remains stubbornly high. The concern is that strong wage growth will increase costs for companies, forcing them to push up prices further. On Monday, Bank governor Andrew Bailey said reducing inflation is 'so important' as people 'should trust that their hard-earned money maintains its value'.
Ashley Webb, UK economist at Capital Economics, said the latest wage figures 'won't ease the Bank of England's inflation fears significantly'. Deutsche Bank noted that an increase in rates to 5.5% next month 'now looks more likely than not'. Forecasts of further rate rises have pushed mortgage costs to their highest level in 15 years.
The ONS data also showed that pay rises were highest in better-paid sectors such as finance and lower in retail. However, the most up-to-date figures for May alone suggest wage growth may be beginning to slow, raising the possibility that pay increases have peaked. Kitty Ussher, chief economist at the Institute of Directors, described 'hopeful signs' in the latest figures, with vacancies falling and more people returning to the labour market.
Chancellor Jeremy Hunt commented: 'Our jobs market is strong with unemployment low by historical standards. But we still have around one million job vacancies, pushing up inflation even further.' Labour's shadow work and pensions secretary Jonathan Ashworth called the figures 'another dismal reflection of the Tories' mismanagement of the economy', noting that Britain is the only G7 country with a lower employment rate than before the pandemic.
