UK Wage Growth Leaves No Room for Respite as it Continues to be Outpaced by Inflation

Main points

• The latest ONS estimates suggest the annual growth rate of average weekly earnings was 5.5 per cent in the 3 months to July, consistent with what our tracker predicted last month.
• Today’s estimates also suggest that real regular pay in the UK fell by 2.8 per cent, marginally lower than the record fall in the second quarter but remains one of the highest falls on record.
• NIESR’s wage tracker now predicts that average weekly earnings will grow at 6.2 per cent in the third quarter of this year.
• The figures today show the largest disparity in public and private sector wages outside of the pandemic period, where private sector regular pay grew by 6 per cent while regular pay in the public sector grew by 2 per cent.
• The UK unemployment rate was 3.6 per cent in the three months to July, the lowest rate since 1974. The fall in the unemployment rate was driven largely by a rise in the inactivity rate.
• The latest figures suggest the labour market might be losing some of its momentum, with the number of job vacancies in the three months to August period falling by 34,000, the largest quarterly fall in two years.

“Today’s ONS estimates suggest a growth in average weekly earnings, including bonuses, of 5.5 per cent – in line with our previous forecast. Despite this growth, real regular wages fell by 2.8 per cent in the three months to July, indicative of the intensity of inflationary pressure in the economy. Strikingly, the figures today note the largest disparity in public and private sector wages recorded outside of the pandemic period, where private sector regular pay grew by 6 per cent while its public sector counterpart grew by 2 per cent. Workers in these sectors may well be asymmetrically equipped to deal with the ongoing cost of living crisis.”

Paula Bejarano Carbo
Data Analyst, NIESR

 “The latest labour market statistics showed the unemployment rate fell to its lowest since 1974 as more people dropped out of the workforce. The fall in the unemployment rate was largely driven by a sharp increase in the inactivity rate as students and those suffering from long-term illness left the workforce.”

Hailey Low
Associate Economist, NIESR

"Today’s figures suggest there is less slack for the economy to grow without pushing prices further above the Bank of England’s 2 per cent target. This undoubtedly adds pressure on the BoE to be more aggressive with interest rate hikes, but also on the government to help get people back into work.”

Dr Kemar Whyte
Principal Economist, NIESR