Wednesday, May 29, 2024
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UK wages are rising at their fastest pace on record and more quickly than in most other major economies, adding to pressure on the Bank of England to further raise interest rates.

Official figures show that in the three months to June, nominal regular pay, which excludes bonuses, rose at an annual rate of 7.8 per cent, the highest since records began in 2001 and much faster than in the US and the eurozone, where wages are rising by just over 4 per cent.

Markets believe that both the Federal Reserve and the European Central Bank are at or near peak interest rates, but they are pricing that Britain’s central bank will raise them by another half percentage point to 5.75 per cent by the end of the year.

Although the tightness of the UK labour market is easing, demand for workers still far outstrips supply, with over 1mn unfilled job vacancy in the three months to July according to official figures.

That has helped push up wages across many sectors, with the impact of higher interest rates only starting to show in slowing pay growth in construction.

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Regular wage growth in retail in the 3-month to June, annual % change

Britain’s largest retail employers predict that labour costs will remain a challenge even as other input prices come down.

“Simply put, you just have to differentiate between structural and transitory inflation,” Tesco’s chief executive Ken Murphy said. “We see structural wage inflation in the system through our producers, our supply chain and our own retail operations.”

According to the Office for National Statistics, regular wages in retail rose at an annual rate of 7.7 per cent in the three months to June, up from 6 per cent in the previous quarter.

As in other sectors, wages have been pushed up by labour shortages both because of Brexit and the effects of the pandemic.

“Obviously there’s the impact of Brexit and migrant labour, also the impact of how the post-Covid world looked like, when people reassessed what they were prepared to do,” said Nadine Houghton, an organiser at the GMB union.

Two supermarket firms, Aldi and Lidl, have already set higher rates of pay to attract workers. This has put pressure on other retailers to follow suit.



Regular wage growth in accommodation and food services in the 3-month to June, annual % change

Faced with high vacancy rates — there are currently 124,000 unfilled jobs in the sector according to the ONS — hospitality businesses have been forced to offer generous pay rises simply to retain staff.

The government’s decision to up the hourly minimum rate by nearly 10 per cent to £10.42 has also added to the wage bills of restaurants, pubs and hotels.

Wages in accommodation and food services rose at an annual rate of 6.5 per cent in the three months to June, up from 4.4 per cent in the previous 3 months according to the ONS.

Jonathan Neame, chief executive of pub chain and brewer Shepherd Neame, said the minimum wage hike was the “main driver” of wage growth in the sector.

But Baton Berisha, chief executive of the upmarket restaurant group the Wolseley, said: “Lack of workforce has driven wages up considerably since Brexit we have fewer people in general working in hospitality and therefore everyone had to increase wages.”



Regular wage growth in the manufacturing sector in the 3-month to June, annual % change

A severe shortage of manual labourers is forcing UK manufacturers to increase wages, adding to pressures on employers who have had to spend more on energy and parts over the past year.

Factory owners say they are also grappling with an ageing workforce and the loss of EU workers after Brexit, as well as the impact of the pandemic.

“Companies have paid whatever it takes to maintain their skills base,” Verity Davidge, director of policy at industry group Make UK.

The sector had 70,000 vacancies in the three months to July, according to the ONS, while wages rose at an annual rate of 8.2, up from 6.4 per cent in the previous 3 months

Some specialised jobs have seen wages soar even higher. Annual salaries for sheet metal workers, for example, have increased 35 per cent, with 19 per cent of employers waiting between six and 12 months to fill vacancies, according to a survey of 236 businesses published by industry body Make UK in June.

The increase in the minimum wage and the cost of living crisis have also left manufacturers under pressure to lift wages for lower-paid factory staff.



Regular wage growth in the construction sector in the 3-month to June, annual % change

Higher interest rates and cuts to public spending are hitting confidence in the construction sector and starting to limit wage growth.

In the three months to June, pay rose at an annual rate of 5.8 per cent, down from 6.5 per cent in the previous quarter.

Higher mortgage rates, leading to a drop in home sales, and the end of the government’s Help to Buy scheme have hit housebuilders. The wider industry has been hit by a delay to the publication of the government’s National Infrastructure and Construction pipeline and the decision to halt work on parts of the controversial high-speed rail project HS2.

Despite this, the Construction Industry Training Board found that the “need to recruit and retain talent in the sector has arguably never been greater”.

“Between 2021 and the beginning of this year . . . there was a lot of churn, a lot of organisations were seeing a lot of staff movement,” said Mark Reynolds, chief executive at consultancy and construction group Mace. “That’s primarily why we saw a greater increase in salaries.”

He added that wage growth was “flattening off” due to market conditions.

Financial services


Regular wage growth in the finance and business services sector in the 3-month to June, annual % change

Financial services companies have been beneficiaries of a revenue windfall as interest rates rise, with high street lenders among the biggest winners.

“Since interest rates started rising, banks (particularly the big ones) have made rather a lot of money,” said Mark Mullen, chief executive at digital lender Atom Bank. “To put it bluntly, bankers benefit when the profits roll in.”

But as in other sectors, wage growth is also driven by persistent high inflation. Official figures show that wages in finance and business services rose at an annual rate of 9.4 per cent in the three months to June, up from 8.8 per cent in the previous quarter.

Staff costs rose by around 4 per cent year-on-year across Lloyds, NatWest, Barclays and HSBC in the first half of 2023.

“We see cost inflation in a variety of areas,” said Lloyds chief executive Charlie Nunn at an earnings call in July. “We certainly see it in wages and that is a big part of our overall operating expenses, [representing] around 40 per cent of the total.”

Firms are facing pressure from unions to repeat mid-year pay rises. High-street lenders including Lloyds, NatWest and Santander increased wages for less senior employees by 4 to 5 per cent in 2022, with some offering additional lump sums on top.

There are signs that wage increases in the best-paid roles in the sector could ease, however. Investment banks are going through a relatively barren patch of M&A this year, which has resulted in thousands of job cuts and bonus reductions that are likely to continue.

Health sector


Regular wage growth in the health and social work services sector in the 3-month to June, annual % change

The biggest wave of industrial action to hit the UK’s taxpayer-funded health service for decades has been under way since last December as staff have fought to boost recruitment and restore pay levels eroded by inflation.

Helga Pile, deputy head of health at Unison, the union, said the industrial action had been fuelled by a cost of living crisis, with inflation outstripping levels of pay at the same time as other industries were making more generous offers.

“A lot of employers in the private sector were putting wages up and that was proving to be something that many NHS staff simply couldn’t ignore,” Pile added.

While official figures show that health and social work pay rose at an annual rate of 6.8 per cent in the three months to June, up from 5.3 per cent in the previous 3 months, health sector vacancies remain at a historic high.

However, wage bill pressure in the sector is expected to ease next year. While disputes with key groups of doctors remain unresolved, Danny Mortimer, chief executive of NHS Employers, said there was “a short-term impact from the way in which last year’s pay disputes were settled with non-medical staff groups”.

Most of the unions accepted one-off payments for 2022-23, as well as a 5 per cent consolidated pay increase for 2023-


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