Wages Rise Despite Brexit

The employment sector has continued to stay strong over the last few years, despite the implications of Brexit. Although there are some tell tale signs of slow down in the air, things tentatively seem to be improving for UK workers. A recent rise in wages means the average regular pay, before deductions, is at £503 a week according to the Office of National Statistics.

 

What’s Causing Wages to Rise?

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There are a few reasons that wages have gone up. The new National Living Wage and National Minimum Wages were introduced in April, which has caused earnings for all workers to rise in the region of 30-38p (this varies for each different age group). Some NHS staff also received a pay rise in April, which has contributed to the results.

Another factor is at play here too – the job market itself. With a record amount of people in work, and less unemployed, the UK labour market is currently facing a major skills shortage. This is leading employers to raise wages in order to retain skilled employees, and also means that skilled candidates are able to negotiate higher salaries. There is currently major demand for builders and lorry drivers for example, which is causing the wages for those professions to climb.

 

Are We Really Better Off?

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The fact that wages have risen is certainly a good thing for us all, but it’s also important to consider that after deductions and inflation adjustments, the £503 per week actually translates into £468 a week. Compared to the pre 2008 pay level of £473 a week, households are in fact £5 a week worse off than in 2008.

Something else to consider is that while wages are expected to continue to grow in the region of 3% in the next few years, there’s no real telling how much inflation will follow suit. Furthermore, the recently tumbling value of the pound could end up countering what individual financial gains have been made by workers as a result of increasing wages.

Finally, the outcome of Brexit is certain to have a direct impact, with the worst case scenario for inflation, wages, and the pound being no deal. In this scenario, the value of the pound is expected to drop even further. Should this happen, and if combined with a rise in inflation, any increase in wages is unfortunately unlikely to have any practical effect in the long run.

Conversely, predictions suggest that exiting the EU with a deal could at least rally the pound to some extent, which may well end up adding more real term value to the rise in wages.

 

The Growth Problem

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There are potential long term issues that are hard to ignore, despite the recent wage rise. The main concern is that growth is starting to stagnate. If this happens, the country could enter recession.

Additionally, the employment bubble could quickly burst. Commentators noted some time ago that given the current uncertainty, it’s much safer for businesses to hire employees than make major investments that can’t easily be reversed.

Experts will no doubt be eagerly awaiting the ONS employment analysis figures due in August, to get further insights into what could lay ahead. For now at least, the growth in wages can be treated with a tempered optimism.