Wage growth beats inflation for the first time in almost two years

UK wages grew at 7.8% in the three months to August- here’s what this means for unemployment, inflation and interest rates

Businesswoman is working on the laptop, making online purchases with a card
(Image credit: Yana Iskayeva)

UK wages are now rising at a faster rate than inflation for the first time since October 2021, as latest data from the Office for National Statistics (ONS) reveals regular earnings grew by an annual rate of 7.8% between June and August – 0.7% higher than Consumer Prices Index (CPI) inflation in the same period.  

Revised figures from the ONS revealed that annual growth in regular pay excluding bonuses exceeded CPI inflation by 0.1% in the previous three months to July. 

Total wages including bonuses jumped by 8.1% in the three months to August, although this was affected by NHS and civil service one-off payments.

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Public sector pay jumped 6.8% higher from June to August – one of the highest growth rates since records began in 2001 – but continued to lag behind the private sector at 8%.

What does this mean for inflation? 

Inflation fell to 6.7% in August, but this is still  way above the government's 2% target

The next round of inflation figures will be released tomorrow (18 October) and are expected to show another decline to 6.6%..

Despite the wage growth figures and slowing inflation, this doesn’t necessarily mean it will ease cost of living pressures for everyone.

Alice Haine, personal finance analyst at Bestinvest, said: “While high wage growth can ease the financial squeeze for households, it runs the risk of fuelling inflation if businesses pass on that cost to customers by hiking the price of their goods and services. 

“This would only add further pressure to household finances at a time when energy prices are under threat from geopolitical tensions and rising demand amid the colder weather.”

Unemployment rate continues to rise

ONS provisional real-time figures estimated that UK workers on payrolls fell by 11,000 month-on-month to 30.1 million in September.

Vacancies also dropped to 988,000 in the three months to September, down by 43,000 on the previous quarter and marking the 15th drop in a row.

It’s good news compared to the same period last year, as vacancies were 256,000 lower. 

Haine at Bestinvest says the rise in unemployment is down to “employers became increasingly cautious about hiring amid uncertain economic conditions.

Those who have already faced redundancy may find it harder to secure a new role while those looking to jump to the next rung of the career ladder could find their options narrowing.”

What does wage growth mean for interest rates?

Samuel Tombs at Pantheon Macroeconomics said the slight easing in the pace of wage growth should enable interest rate-setters at the Bank of England to hold off from further rises.

“Signs that wage growth is losing momentum should persuade the MPC to keep Bank Rate at 5.25% again next month,” he said.

He added the Bank is likely to hold rates at 5.25% until next spring “and then to reduce it to about 4.5% by the end of 2024”.

Additional reporting Press Association

Vaishali Varu
Staff Writer

Vaishali has a background in personal finance and a passion for helping people manage their finances. As a staff writer for MoneyWeek, Vaishali covers the latest news, trends and insights on property, savings and ISAs.

She also has bylines for the U.S. personal finance site Kiplinger.com and Ideal Home, GoodTo, inews, The Week and the Leicester Mercury

Before joining MoneyWeek, Vaishali worked in marketing and copywriting for small businesses. Away from her desk, Vaishali likes to travel, socialise and cook homely favourites