United Kingdom: wage inflation hits record highs

This level had not been reached since 2000. According to the August report by the British National Statistics Office (ONS) published on Tuesday, wage inflation would have reached 8.8% in the United Kingdom in June.

Growth in accelerated in parallel with growing recruitment difficulties. In July, the number of vacant jobs also broke its record, crossing the million mark, while the number of hours worked remained below pre-pandemic levels.

Tensions on the labor market The increase in wages is mainly due to this shortage of workers. The reopening of the UK economy marked the start of a recruitment race, especially in sales, hotels and logistics. Jobs in the latter would have increased by 263% compared to 2018, according to a study by the job search platform Adzuna.

The need for workers is such as some employers do not hesitate to offer significant welcome bonuses. At the end of July, the chain stores Tesco and Asda were promising a premium of 2. pounds for all new truck drivers. Without counting these bonuses, wage growth fell to 7.4% – an increase which remains higher than that of May.

For the ONS, this increase is mainly due to an ” coronavirus ”. The slowdown in the economy has led to many layoffs, partial unemployment and a drop in the number of hours worked. Mechanically, wages therefore fell: wage growth was even negative between May and July 2018. Conversely, the economic recovery and the gradual return to normal contributed to the acceleration of wage growth.

A record to qualify Another factor: employees at the bottom of the scale (paid below the national average) were more affected than the others . “A good analogy is that of size,” says ONS Director General of Economic Statistics Jonathan Athow. “If the smallest person in a room leaves, it increases the average group size without the other people growing up.” By removing these two effects, wage growth would therefore oscillate rather between 4.9% and 6.3% with bonuses.

An important nuance, which justifies for the ONS to take these results with tweezers. Moderation followed by the authorities. While some observers have argued that wage inflation could lead the Bank of England to raise interest rates earlier than expected, the latter considers this to be a very short-term trend. The upcoming end of the partial unemployment scheme should make job seekers pick up again, and ultimately slow down wage growth.