A jump in basic wage growth to 7.2% boosts the purchasing power of households | Business news

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The latest employment data shows that the gap between the wage increase and the inflation rate is rapidly narrowing, a scenario that will cause concern to the BoE.

By James Sellars, Business Correspondent @SkyNewsBiz

Tuesday 13th June 2023 07:32, United Kingdom

The pace of basic wage growth accelerated to a record in the 12 months through April, according to the latest official figures..

The ONS said average earnings, excluding bonuses, grew 7.2% over the 12-month period – up from 6.7% recorded in March and higher than the 6.9% forecast by a Reuters poll of economists.

While this figure is still below the rate of inflation, it represents an improvement in household purchasing power given that the Consumer Price Index (CPI) measure of inflation fell sharply to 8.7% in April.

The broader employment figures also showed a surprising drop in the unemployment rate to 3.8% when experts had expected it to rise to 4%.

That basically came down to a 250,000 increase in employment in the three months through April.

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ONS Director of Economic Statistics Darren Morgan said: “With another rise in employment, the number of people employed in general has exceeded the pre-pandemic level for the first time, setting a new record, as has total hours worked.

Meanwhile, the biggest driver of recent job growth is health and social care, followed by hospitality.

“While there was another decline in the number of people not working and not looking for work, which is now falling across the age group, those who are out of the labor market due to long-term illness continue to rise, to a new record.

“In monetary terms, basic wages are now growing as fast as they have since current records began, except for the period distorted by the pandemic.

However, rising wages lag behind inflation.

The better-than-expected wage numbers can be explained in part by increases in minimum wage levels, of nearly 10%, that took effect in April.

The government approved the increases to help the lowest earners fight the cost of living crisis.

Still, the BoE’s rate setters want to see ONS wage numbers fall rather than rise, and are expected to cite the data as a reason to raise the bank rate again when it meets next week.

There have been 12 consecutive price increases so far to help fight inflation.

Governor Andrew Bailey has often spoken of concerns that increasing wages to offset the rate of inflation could fuel the pace of price growth – inflation – by boosting demand in the economy.

The cost of living pains is yet to come

Such an economic argument has been rejected by labor unions seeking to improve wage deals in both the public and private sectors.

Increases in the bank interest rate are largely responsible for broader borrowing costs, such as mortgages, as the head of Britain’s HSBC Bank told Sky News on Monday that there is no sign that fixed interest rates are starting to return in the right direction because inflation has occurred. It proved sticky.

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