Wage Growth Fastest Since Financial Crisis

According to data from the Office of National Statistics released a few days ago, wage growth is accelerating at its fastest rate since the financial crisis. UK staff are now earning £462 per week before deductions, with wages rising by 3.1% year on year, excluding bonuses.This certainly seems like good news for employees across the country at first glance, but there are a few important factors to consider. Sarah Chorley, portfolio manager for investment company Quilters, cautioned: “We should not get too far ahead of ourselves. Rising wages are welcome, but they are still only fractionally above inflation despite a tight labour market. Normally a shortage of available workers to fill positions would have been expected to push up wages before now.”.

Causes of Rising Wages

Given the record level of employment and extremely low rates of unemployment in the UK at the moment, many experts would have expected wages to rise far sooner than they have, as Chorley pointed out.

This is because a shortage of available workers encourages employers and recruiters to not only offer more competitive salaries to attract talent – it also tends to mean companies raise salaries to try and retain their existing workforce. The fact that wages have not risen sooner therefore, could be a slight cause for concern.

Cautionary Optimism

David Freeman, head of the labour market at the Office of National Statistics pointed out that while wage growth is of course a good thing, it was important to acknowledge inflation as well. “People’s regular monthly wage packets grew at their strongest rate in almost a decade but, allowing for inflation, the growth was much more subdued.” He said.

While unemployment also continued to remain low, Mr Freeman also mentioned that the number of people not working or looking for a job had risen by a “notable uptick”.

Furthermore, the accelerated wage growth does mean workers are taking home more than they were this time last year, yet wages in general are still £11 a week lower than they were before the financial crisis of 2008. Another potential problem is that take home earnings aren’t really beating inflation by a high enough rate to encourage spending, which will do little to alleviate pressure on businesses that are highly reliant on consumers, like high street chains.

Potential Future Pressures

The UK leisure industry is one such sector facing potential problems in the future despite the fact wages have risen and employment is high. Nick Varney, the Chief Executive of Merlin the company that runs Legoland and Madame Tussauds, commented that: “While the picture of near full employment is good news at present, to make this sustainable in the case of any shock or downturn, the government needs to support entry-level jobs. It could do this by increasing the threshold for national insurance contributions, allowing employers to attract more people into work and invest in skills development.”.

These are fair points, as an ongoing skill shortage could end up undoing any progress made by rising wages and low levels of unemployment.