Average weekly earnings, including bonuses in the UK, increased by 6.4% year-on-year to GBP 629 in the three months to November of 2022, the most since the same period to May, above an upwardly revised 6.2% gain in the three months to October, and topping market estimates of 6.2%.
A statement from the Bank of England Governor Andrew Bailey said that inflation looks set to fall this year as energy prices decrease. However, he also stated that a shortage of workers in the labour market poses a “major risk” to this scenario: “I think that going forwards the major risk to inflation coming down… is the supply side – and in this country particularly, the question of the shrinkage of the labour force”, Bailey told parliaments Treasury Committee.
The BoE is expected to raise interest rates for a tenth time in a row early next month and the main concern for investors is the scale of the increase as the central bank weighs up the risk of a recession with the need to fight inflation. Currently markets are pricing in a 65% chance of a 50 basis points (bps) hike and a 35% chance of a 25 bps increase.
The latest data release shows wages have grown at the fastest rate in over twenty years in the UK, yet workers are still taking a pay cut as the increase lags behind inflation. Average earnings excluding bonuses were 6.4% higher in the three months through November than a year earlier, the Office for National Statistics has revealed. That is the fastest growth since 2001, excluding the pandemic, when people received large uplifts after returning to work from furlough.
Irrespective of the increased wages, workers are earning less. Real wages as pay failed to keep up with the increasing costs of goods. Most recent official figures show inflation stood at 10.7%, meaning that people are effectively earning less. Furthermore, the gap between private and public sector continued, with private employers increasing their pay by an average of 7.2% while public sector workers only had a pay bump of 3.3%.
For the moment, the unemployment rate hit 3.7%, up from 3.5% in the previous quarter. The ONS said that in the latest period the number of people out of work for up to six months rose, driven by 16-24 year olds. There was also an increase in the 6-12 month unemployment figure, but a drop in the number of people out of work for more than a year. The ONS does however caution that despite six consecutive quarterly falls, the number of vacancies remains at historically high levels. This is again consistent with a view that the BoE will likely push interest rates higher and could prove supportive of the pound.
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