UK workers have seen their largest wage increase since the pandemic with a 7.2% rise in the three months to April, according to the Office for National Statistics (ONS).
This is just marginally short of the 7.3% jump seen during the height of the pandemic. The figures for the February-April quarter also show a substantial increase from 6.6% in the November-January period.
In part this will be down to a significant increase of 9.7% in the minimum wage in April, which significantly boosted overall pay. Total earnings, including bonuses, rose by 6.5% annually in the three months leading up to April.
Alongside this wage increase, the ONS revealed a drop in the unemployment rate to 3.8%. Despite the strong labour market performance, economists warn of the potential inflationary pressures that wage increases can bring to the economy.
Bank of England Governor, Andrew Bailey, has repeatedly expressed concerns that wage hikes to counter inflation can accelerate the rate of price growth by boosting demand within the economy.
Analysts believe that today’s ONS figures confirm the likelihood of another interest rate increase by the Bank on June 22nd, with further increases anticipated.
Yael Selfin, chief economist at KPMG UK, said: “Continued strength in pay growth will warrant higher interest rates.
“The pickup in regular pay growth is the latest sign that inflation is driving up pay demands, which in turn is making inflation stickier.”
With negative productivity growth, she added, “these figures are well above the levels consistent with the 2% target.”
Selfin concluded: “If there was still any doubt about the direction of monetary policy, these data should solidify another interest rate increase from the Bank of England next week, and probably more in the coming months.”
