UK wage growth hits record high of 7.8%

It is the highest regular annual growth rate since 2001, according to the Office for National Statistics

UK basic wages grew at their fastest pace in more than 20 years between April and June, according to the ONS. PA

Basic wages, excluding bonuses, were 7.8 per cent higher than a year earlier in the three months to June, figures published by the Office for National Statistics show.

It was the highest annual growth rate since comparable records began in 2001, the ONS said.

The Bank of England looks closely at wage inflation when making its decisions on interest rates and has warned that growing wage inflation could lead to further rises.

The pound increased by around 0.3 per cent on the wage figures to $1.2721.

Annual growth in employees’ average total pay, which includes bonuses, was 8.2 per cent in April to June this year, although the ONS said this was affected by the NHS's one-off bonus payments made in June.

However, workers will not feel that much better off. When taking into account the effect of inflation, the rise in the quarterly wage numbers is 0.5 per cent for total pay and 0.1 per cent for regular pay.

Nonetheless, Darren Morgan, ONS director of economic statistics, said "earnings continue to grow in cash terms".

"Coupled with lower inflation, this means the position on people's real pay is recovering and now looks a bit better than a few months back," he added.

Meanwhile, unemployment unexpectedly moved higher. The UK unemployment rate was estimated at 4.2 per cent, 0.3 percentage points higher than the previous quarter and 0.2 percentage points above pre-pandemic levels, the ONS said.

The number of people in employment fell by 66,000 during the April to June quarter and job vacancies continued their downward march to 1.02 million, their lowest in two years.

The number of employees on payrolls increased by 97,000 to 30.2 million in July, although the ONS pointed out that the figure was "provisional estimate and is likely to be revised when more data are received next month".

Chancellor Jeremy Hunt said: "Thanks to the action we've taken in the jobs market, it's great to see a record number of employees.

"Our ambitious reforms will make work pay and help even more people into work - including by expanding free childcare next year - helping to deliver on our priority to grow the economy."

The Bank of England. Wage inflation is worrying for interest rates. Mary Turner / Reuters

Rate rise

Economists now expect the Monetary Policy Committee at the Bank of England to raise interest rates by 0.25 per cent to 5.5 per cent next month. Inflation figures due out on Wednesday are expected to show a drop to 6.8 per cent. Anything more could spell a larger rate increase in September.

"Good news for workers is bad news for the fight against inflation and today’s numbers will see another 0.25 per cent interest rate rise virtually fully priced in by the market for next month’s MPC meeting, bar any large surprise in tomorrow’s inflation report," said Stuart Cole, chief macro economist at Equiti Capital.

Within the overall wage growth figures, the finance and business services sector saw the largest annual regular growth at 9.4 per cent.

That was followed by the manufacturing sector at 8.2 per cent.

"The picture painted by these jobs numbers is adding up to be a stagflation scenario, with prospects of growth slim while inflation risks staying stubborn," said Susannah Streeter at Hargreaves Lansdown.

"Industrial disputes between NHS workers and the government are not helping the inflation battle.

"With real wages moving back into positive territory for the first time and surpassing the headline inflation rate, consumer spending is expected to stay more upbeat, which bodes better for companies selling discretionary goods – items we might want but we don’t necessarily need."