UK wages grow faster than expected but lag behind inflation
UK wage growth accelerated more than expected in the three months to December but remained below inflation, according to official statistics that will be closely watched by the Bank of England ahead of its next interest rate decision.
Growth in average regular pay, excluding bonuses, rose to an annual rate of 6.7 per cent in the final three months of 2022, up from a revised 6.5 per cent in the three months to November.
That was higher than the 6.5 per cent forecast by economists polled by Reuters. The Office for National Statistics said it was the strongest regular pay growth rate outside the coronavirus pandemic period.
Ashley Webb, UK economist at Capital Economics, said that the BoE “will be increasingly concerned about the persistence of domestic inflationary pressures”.
Markets are pricing a 0.25 percentage point increase in interest rates when the central bank’s Monetary Policy Committee meets on March 23.
Once again, pay grew more quickly in the private sector than it did for public sector workers, one of the factors behind a wave of strike action in recent months. Average regular pay growth for the private sector was 7.3 per cent in the last three months of 2022, and 4.2 per cent for the public sector.
Darren Morgan, ONS director of economic statistics, said: “Although there is still a large gap between earnings growth in the public and private sectors, this narrowed slightly in the latest period. Overall, pay, though, continues to be outstripped by rising prices.”
Pay growth in both sectors is still below inflation, which is running at 10.5 per cent. Adjusted for inflation, regular pay fell by an annual rate of 2.5 per cent.
Rachel Gomez, senior economist at think-tank Pro Bono Economics, said: “The national pay squeeze has now entered its 15th month.”
Reflecting unusually high bonuses in 2021, when inflation started to climb, wage growth including bonuses slowed to 5.9 per cent in the three months to December, the lowest level since the summer, and contracted by 3.1 per cent in real terms.
Falling real wages were behind the 843,000 working days lost because of labour disputes in December, the highest number since 2011, ONS data showed. The figure for the second half of 2022 was the highest in 30 years.
The labour market remained tight. The unemployment rate was unchanged at 3.7 per cent in the three months to December, just 0.2 percentage points above its historical low of 3.5 per cent reached in the summer.
Total employment rose by 74,000 in the three months to December from the previous three months, stronger than analysts’ forecast of 40,000.
Inactivity, which tracks those not looking for work, also decreased in the final quarter, partially reversing the increase seen over the past three years that has contributed to labour shortages and wage pressure.
The fall in inactivity was “particularly welcome as the chancellor looks to further boost workforce participation in his upcoming Budget”, said Nye Cominetti, senior economist at the Resolution Foundation.
Job vacancies continued to decline, but remained well above the historical average.
Commenting on the data, Jeremy Hunt, the chancellor, said: “In tough times, unemployment remaining close to record lows is an encouraging sign of resilience in our labour market.
“The best thing we can do to make people’s wages go further is stick to our plan to halve inflation this year.”