Wage Growth Outstrips Inflation Amid Economic Uncertainty in the UK
Overview of Wage Growth in the UK
Recent official figures from the Office for National Statistics (ONS) indicate that average wages in the UK are outpacing inflation, demonstrating a 3.4% increase from October to December year-on-year, when inflation adjustments are considered.
Current Job Market Insights
Despite the rise in wages, the unemployment rate holds steady at 4.4%. It’s important to note, however, that this figure comes with caution due to low response rates to the ONS employment survey. Concerns have been raised by businesses regarding potential workforce reductions and price hikes in anticipation of increasing employment-related costs in April.
Factors Influencing Wages and Employment
The rise in wages has been noteworthy, with a 5.9% increase in annual pay (excluding bonuses) reported, slightly up from 5.6% previously. Wages in the private sector have seen a 6.2% growth, while public sector wages rose by 4.7%. Currently, UK inflation stands at 2.5%, but forecasts suggest an upturn due to rising energy and water bills, which could impact tightly held household budgets.
Looking Forward: Predictions and Risks
Yael Selfin, KPMG UK’s chief economist, anticipates a “steady downward trend” in wage growth in the near future, particularly given weakening hiring intentions among businesses. The hospitality and retail sectors, which are heavily reliant on lower-wage employees, may particularly feel the effects of increased costs. Economists warn that there are limits to how much businesses can absorb these costs without affecting employment and investment opportunities.
Impact of National Insurance Changes
Starting in April, significant increases in National Insurance contributions will begin, rising to 15% on salaries over £5,000, from the current 13.8% on salaries exceeding £9,100. This change raises concerns about its repercussions on UK economic growth and living standards. Businesses are contemplating price increases to manage these new financial pressures, potentially further contributing to inflation.
Current Employment Trends
The overall number of vacancies has decreased by 110,000 (11.8%) compared to the previous year, despite remaining above pre-Covid levels. However, recent estimates show that the number of workers on payroll has increased by 21,000, bringing the total to 30.4 million as of January.
Concluding Thoughts
In light of these changes, business leaders are urged to remain vigilant, with the upcoming months seen as critical. Factors such as the National Insurance adjustments and developments regarding employment rights will significantly impact the jobs market as the year progresses.