Real Wages Grow for the 1st Time in Almost 2 Years Amid Easing Inflation

Regular wage growth has began outpacing inflation since June, and nominal wage growths have slowed slightly, suggesting interest rates may stay at 5.25 percent.
Real Wages Grow for the 1st Time in Almost 2 Years Amid Easing Inflation
Undated file photo of a wage slip. (Alamy/PA)
Lily Zhou

The annual growth of regular pay has outpaced inflation for the first time in almost two years, according to official estimates published on Tuesday.

The Office for National Statistics (ONS) said the average weekly wages during June to August has grown by 1.1 percent in real terms compared to the same period last year.

Monthly figures show real wages began to grow in June, by 0.6 percent on last year. It was the first time real regular pay has shown annual growth since Sept. 2021.

In July and August, average regular wages grew by 1.3 percent in both months compared to the same months in 2022 when adjusted for inflation using Consumer Prices Index including owner occupiers’ housing costs (CPIH).

The total pay growth, which includes bonuses, grew by 1.3 percent on last year between June and August in real terms, the ONS said.

It comes after CPIH inflation slowed to 7.7 percent in the second quarter this year, down from a peak of 9.4 percent in Q4 last year.

Commenting on the figures, Chancellor of the Exchequer Jeremy Hunt wrote on X, formerly known as Twitter, “Good news that inflation is falling while real wages are growing, so people have more money in their pockets.

“To keep this progress up, we have to stick to our plan to halve inflation this year, which the Bank of England and others say we’re on track for,” he added.

Also writing on X, Sharon Graham, general secretary of Unite, said, “The real value of wages has been eroded over more than a decade. Data suggesting pay rises have finally caught up with #inflation will give hard-working families some respite from the damage that has been wrought on incomes by years of economic incompetence and mismanagement.”
She added that the union will “continue to fight for fair pay” if companies tighten their purse strings.

Nominal Pay Growth Slows Slightly

While not adjusted for inflation, the annual growth of total pay has edged down slightly, which is likely to give the Bank of England (BoE) some confidence for keeping the base interest rate at where it is next month.

Between June and August, the average regular weekly pay grew by 7.8 percent compared to the same period in 2022, down from a peak of 7.9 percent in the last three-month period (May–July).

The public sector saw a 6.8 percent growth, which is the highest regular annual growth rate since comparable records began in 2001, the ONS said.

The private sector regular pay grew by 8 percent. It’s also among the fastest annual growths outside of the COVID-skewed period.

Taking bonuses into account, the annual nominal pay growth was 8.1 percent between June and August. It’s down from 8.5 percent in the last three-month period and the fifth highest annual growth on record.

The growth rate was affected by the NHS and civil service one-off payments made in June, July, and August, the ONS said.

The showing down of wage growth may help to tip the scale towards not resuming interest rates hike.

The BoE’s Monetary Policy Committee (MPC), which is tasked with keeping inflation at around 2 percent using tools such as interest rate-setting, have raised rates 14 consecutive times, from 0.1 percent to 5.25 percent. It halted the hikes in September, keeping the rate at 5.25 percent.

Samuel Tombs, economist at Pantheon Macroeconomics, said the new ONS figures should tip the scale towards maintaining the rate again.

“Signs that wage growth is losing momentum should persuade the MPC to keep Bank Rate at 5.25 [percent] again next month,” he said in a statement.

Speaking at an event hosted by think tank Official Monetary and Financial Institutions Forum on Monday, BoE chief economist Huw Pill said wage indicators have been running “at a pace that is not consistent with price stability in steady state,” adding, “Now is it consistent with the transition to price stability following these big shocks? I think that’s a more open question.”
He also said the ONS’s estimates of wage growths appear to be “increasingly an outlier“ across a range of indicators at the higher end.