The data from the ONS found that annual growth in regular pay, which excludes bonuses, was 7.8 per cent between May and July. That’s the same as the previous three-month period, and represents the highest figure since comparable records began back in 2001.
When bonuses were taken into account, the annual growth in average total pay was 8.5 per cent. When inflation is taken into account, these work out at real terms increases of 1.3 per cent for total pay and 0.6 per cent for regular pay.
The continued rise in wages means the Bank of England is likely to push ahead with another increase to bank base rate this week, argued Alice Haine, personal finance analyst at Bestinvest, in a bid to prevent inflation from creeping back up.
Haine continued: “Governor Andrew Bailey has repeatedly encouraged workers to ease up on aggressive pay demands, despite the pressure wrought by the cost-of-living crisis. However, with strike action still rife and 281,000 working days lost to labour disputes in July, his calls are being ignored.”
Adding fuel to that base rate rise fire, in a speech in Canada, Catherine Mann, a member of the Bank of England’s Monetary Policy Committee (MPC), said interest rates may need to rise again to tame inflation.
She said: “In my view, holding rates constant at the current level risks enabling further inflation persistence…I would rather err on the side of over-tightening.
However, she added: “But, if I am wrong, and inflation decelerates more quickly and activity deteriorates more significantly, I will not hesitate to cut rates.”
The majority of investors believe that the Bank of England will raise interest rates again on 21 September, from 5.25 per cent from 5.5 per cent.
Time to stop the base rate rises
Kitty Ussher, chief economist at the Institute of Directors, called on the Bank of England to hold fire on rate rises as more over-tightening could lead to ‘a series of negative consequences’.
She said: “With today’s data showing a weakening labour market, it is now time for the Bank of England to keep interest rates on hold when it next meets on 21 September.
“Although wage inflation still feels high, the headline rate is now being driven by the recent public sector pay settlements which will not lead to cost pass-through on the part of their employers. Private sector pay wage pressure, although also high, has grown at a lower rate in recent months and is likely to fall further as the labour market loosens and the headline rate of inflation comes down.
“Our own data shows that the large interest rate rise in June led to a worsening in the way that business leaders considered the outlook for the economy. The Bank of England should now give its medicine time to work. The holy grail of a soft landing where we bring inflation down without causing a recession is still possible; the risk now is that too much tightening will unleash a series of negative events that causes the Bank to undershoot its inflation target further down the line.”
Vacancies falling but unemployment up
The ONS data also found that the level of vacancies in the jobs market dropped over the quarter. Between June and August, the number of vacancies dropped by 64,000 to 989,000. That’s the 14th consecutive period of vacancies falling on the quarter.
Despite this, unemployment grew. The ONS found that the unemployment rate increase by 0.5 percentage points to 4.3 per cent, which it said was largely driven by those unemployed for up to 12 months.
Danni Hewson, head of financial analysis at AJ Bell, welcomed the fact that for the first time in almost two years workers would actually feel the benefit of wage growth, given it now exceeds inflation. However, given the rise in unemployment, she cautioned that there may be trouble ahead.
“Unemployment has ticked up, the number of self-employment jobs has experienced a record quarterly fall, and we’ve seen another record high in long term sickness levels.
“The labour market has been resilient but there are signs that the stress of the last couple of years has created a few cracks. The fear is that any more pressure might mean those cracks start to crumble,” she concluded.
State pension set to skyrocket
As a result of the record wage growth, it has also been reported that the state pension is in line for a bumper jump of 8.5 per cent from April 2024. Under the terms of the triple lock, the state pension will increase each year by the largest of the following three data points: the rate of wage growth, the rate of inflation or 2.5 per cent. The wage growth figure is taken from September’s jobs data.
As the total pay figure is the one used to calculate state pension hikes, it means pensioners should see the state pension grow by 8.5 per cent next year. That would mean an increase from £10,600 a year to £11,501.
Alice Guy, head of pensions and savings at interactive investor, said that the state pension increase would provide “a lifeline” to poorer pensioner households.
She added: “One in eight pensioners don’t have any income in addition to the state pension and are completely dependent on the triple lock to help them cover their rising costs. Women are particularly likely to rely solely on the state pension, especially if they are on their own, as many have taken time out from the workplace, which makes it harder to build up a workplace pension.”