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.