Record Wage Growth in UK Q2

author: FutureCar Staff    

The latest estimates from the Office for National Statistics (ONS) show that average weekly earnings in the UK experienced significant growth in the second quarter of 2023. The annual growth rate of average weekly earnings, including bonuses, reached 8.2%, while pay growth excluding bonuses was at 7.8%. These figures represent the highest annual regular pay growth rate recorded since comparable records began in 2001. Looking ahead to the third quarter of this year, our forecast predicts economy-wide regular pay to grow at 7.0% and total pay growth at 6.9%.

Breaking down the data, the private sector experienced a substantial increase in regular pay, with a growth rate of 8.2% in the second quarter. This represents the largest growth rate seen outside of the pandemic period. On the other hand, regular pay in the public sector grew by 6.2%. Looking ahead to the third quarter of 2023, our forecast predicts these figures to be 7.2% and 6.6%, respectively.

In terms of employment, the unemployment rate in the UK increased by 0.3 percentage points to 4.2% in the second quarter of this year. Simultaneously, the employment rate decreased by 0.1 percentage points to 75.7%. However, the economic inactivity rate saw a decrease of 0.1 percentage points to 20.9%. This decrease was driven by individuals transitioning from inactivity to unemployment.

The services sector, which plays a crucial role in the UK economy, has experienced consistent growth in average weekly earnings since the initial impact of the pandemic. Currently, the total annual growth rate stands at 8.4% in the second quarter of 2023. As pay in the services sector accounts for a significant portion of input costs, it serves as the main driver of services inflation. The elevated wage growth in this sector is a concern for monetary policymakers, as it indicates the potential for continued persistence in underlying inflation in the UK, despite monetary tightening measures.

According to Paula Bejarano Carbo, an Associate Economist, the second quarter of 2023 saw remarkable growth in average weekly earnings. Excluding bonuses, wage growth reached 7.8%, marking the highest growth rate in regular pay since comparable records began in 2001. Including bonuses, the growth rate was 8.2%, although this figure is partially influenced by NHS one-off bonus payments. This quarter also marks the first time in nearly two years that real regular and total wage growth have both been positive, thanks to the combination of elevated wage growth and recent drops in inflation. While there are signs of a cooling labor market, such as the rise in the unemployment to vacancy ratio, the labor market remains tight, suggesting that high pay growth will continue throughout the year.

FutureCar Staff