Britain’s new Labour government emerged from its landslide election victory promising to return the country to its economic peak. The latest figures on workers’ wage growth will give it a good chance to deliver on that promise.
According to data from the Indeed Hiring Lab, wages rose by 7% in the UK in the year to June. That’s almost double the growth in the eurozone, where wages rose by 3.7%, and more than double the growth in the US, where they rose by 3.1%.
The results diverge from the broader economic context of the three economies. The UK is expected to grow more slowly than the eurozone and the US this year, the report said. Latest IMF forecasts.
One explanation is probably a bumper increase at national level in the UK Life Salary, the legal minimum that employers must pay to employees over 21 years old.
The UK government has a mandate to keep the living wage at two-thirds of the UK median wage, as recommended by its advisory body, the Low Pay Commission. This target helps protect workers from falling into relative poverty.
To keep up with inflation and private sector wage growth, the national minimum wage rose by 9.8% in April, its third largest increase since its introduction in 2016. minimum The increase in wages was even greater for 16-20 year-olds.
Tony Blair’s Labour government introduced the national minimum wage in 1999. Since then, the UK minimum wage has increased by 70%. The median wage, meanwhile, has only increased by around 20% over this period, suggesting a reduction in pay inequality in the UK.
The Low Pay Commission estimated that around 1.6 million people were paid at or below the minimum wage in April last year, so increases in the base could have outsized effects on growth.
Indeed claims that the national minimum wage contributed to rapid wage growth in the UK last year, but that’s not the whole explanation.
“The strong wage growth across all pay bands suggests that the UK’s National Living Wage increase of 9.8% on 1 April is not the only driver of wage growth, but is having a lasting impact on lower-paid earners, as well as sectoral labour demand,” said Pawel Adrjan, head of EMEA research at Indeed Hiring Lab.
“With Labour planning to remove age bands from the UK’s national minimum wage structure, lower-paid professions could yet benefit from a further boost.”
Labour said it would also authorise the Low Pay Commission mission to expand to include the cost of living, paving the way for even greater increases in the National Living Wage in the future.
Inflation headache
While workers will welcome the pay rise, it could be the final headache for policymakers eager to cut interest rates.
The Bank of England has maintained its fixed base rate at 5.25% for almost a year to combat rising prices.
The Consumer Price Index (CPI) achieve the bank’s goal by 2% in May. However, the central bank expects inflation to rise again in the third quarter, forcing it to delay any rate cut.
At the same time, the country is losing ground to the eurozone, where the European Central Bank (ECB) became the first major central bank to cut interest rates in June.
Any sign of strong wage growth in the UK could prompt Bank of England officials to moderate their already cautious interest rate ambitions.
