For the first time in nearly two years, average pay growth has exceeded inflation, providing a glimmer of hope that the squeeze on living costs is easing. Between June and August, wages increased by 7.8%, higher than the average inflation rate over the same period. Revisions to the figures showed that earnings overtook inflation in the three months to July, marking the first time since the COVID-19 pandemic that pay growth has outpaced price rises.
However, the rise in wages remains an average and does not necessarily signify a reduction in the cost of living for everyone. The largest annual pay increase was experienced by those in finance and business services, followed by those in the manufacturing sector, while there is still a significant disparity between public and private sector pay. Although wage growth for public sector employees reached its highest level since 2001, the average pay rise for private sector employees was 8%, compared to 6.8% for public sector workers.
Despite encouraging signs of a fall in inflation, which currently stands at 6.7%, more than three times higher than the Bank of England’s target of 2%, wage growth slowed in August. This has prompted some experts to conclude that interest rates may have peaked at their current level of 5.25%. Ashley Webb, UK economist at Capital Economics, argued that while wage growth may decrease slowly, interest rates may remain at their highest level until late 2024.
While some sectors, such as finance and business services, have seen significant average wage increase, this is not the case for everyone. The construction sector experienced the lowest average wage growth compared to other industries. Alex Patrick-Smith, Executive Chairman of Dudley brick manufacturer Ketley Brick, expressed concerns that, after surmounting soaring energy prices, a decline in demand has now reduced their revenue by 30%.
Despite the challenges, Mr Patrick-Smith is committed to retaining his 64-strong team, despite the knock-on effect of paying the new living wage, which will increase to £11 per hour from April 2022. “Without a workforce that is going to be here when we come through the other side, we’re not going to be able to produce at the level that we would like to, and so we’re doing everything we possibly can to maintain the levels of employment,” he said
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