Workers get highest pay rise in a decade, but prices could increase faster as a result

16 October 2018
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British workers are receiving the highest pay rises since the end of 2008, but higher inflation could rear its ugly head as a result.

The Office for National Statistics (ONS) says that wage growth for UK workers is now 3.1% excluding bonuses. According to the ONS this is the highest level since October to December 2008.

September’s Consumer Prices Index (CPI) inflation figures of 2.7% mean that wages are now growing at a fair lick above inflation. However, including bonuses, wages have risen by 2.7%.

Pawel Adrjan, UK economist at job site Indeed, explains: “Britain’s labour market is slowly pivoting from job growth to pay growth.

“Average pay is now growing at its fastest rate since 2008, and the curtain could finally be starting to come down on the lost decade of stagnant wages.

“With the number of new jobs created flatlining as the economy hovers close to full employment, employers are having to fight harder and pay more to recruit staff.”

But relative stronger wage growth is a spectre for the return of more traditional inflationary pressures.

Current inflation levels, which are higher than the target of 2% set by the government for the Bank of England, are caused principally by the loss of value of the pound in the wake of the EU referendum.

However, with wages now growing at a fair clip, this could lead to more price rises as more money in workers’ pockets leads to consumer demand increases.

Philip Smeaton, chief investment officer at Sanlam UK, comments: “The Bank of England will be keeping a watchful eye on any upwards pressure this puts on inflation, but it should also help support the consumer and their ability to handle higher interest rates should bank need to increase interest rates.  However, until the outcome of Brexit becomes clearer, rates are likely to be placed on hold.”

The UK’s latest inflation figures are set to be published tomorrow, 17 October.

Comments

In reply to by anonymous_stub (not verified)

I see the CEO's continue to get massive remuneration for their positions. The new top of the P.O. gets £6,000,000 as a Golden Hello. Of course, these are not causing inflation; it's only the rest of us when we get our few pence extra per hour...

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