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An employee uses a press to create a ceremonial military belt buckle in Firmin & Sons’ factory in Birmingham, England, on May 24, 2023. Metalwork specialists Firmin & Sons manufacture: military livery, buttons, badges and accoutrements. The company was established by Thomas Firmin in 1655 making it the oldest manufacturing company operating in England. Firmin & Sons have supplied the British Royal Family from 1754 when orders were placed for buttons for King George II and his household. In 1796 Firmin was granted a Royal Warrant as button maker to King George III and the company has held royal warrants from every monarch since in unbroken succession. (Photo by OLI SCARFF / AFP) (Photo by OLI SCARFF/AFP via Getty Images)

Wage rise worries

Wage rise worries


The rate of wage growth is worrying the Bank of England. Who is benefitting and why does it cause a headache for policymakers?

Data released by the Office for National Statistics shows that wages continue to grow at a record rate.

Economists had widely expected average weekly earnings excluding bonuses to be revised down from an annual growth rate of 7.2 per cent, but instead it went up to 7.3 per cent. For the private sector it was 7.7 per cent but only 5.8 per cent in the public sector. In financial services wages grew by an average of 9 per cent.

In manufacturing they were up by 7.8 per cent. But in construction and the retail and leisure sector wages are rising more slowly.

Wages have risen in part due to a high number of vacancies in the labour market. To attract workers, employers have had to make pay offers more appealing.

Inflation has also had an impact on wages. The war in Ukraine, fuel price hikes and supply-chain issues leftover from the pandemic have all contributed to increased prices for consumer goods and services, pushing up the cost of living. To help employees meet these costs, businesses have boosted their pay.

But Bank of England governor Andrew Bailey told a meeting of bankers and city executives at Mansion House last week that “both price and wage increases at current rates are not consistent with the inflation target” of 2 per cent.

Wage growth is one of many indicators the bank uses to decide whether to raise its interest rate. Consumer Price Index (CPI) data, scheduled to be released later this week, will show whether the prices we pay for goods in the shops have gone up or down. If those numbers show inflation remaining stubbornly high, it is likely that it will have to hike the rate again in August.

It is already at 5 percent – the highest level for 15 years. 

Today’s episode was written and mixed by Ella Hill.