The wage problem

Real wage growth is slowing

Latest data from the ONS shows that the UK labour market remained fairly robust in July 2024 - the number employed was up year-on-year, whilst unemployment was down.

Month-on-month data was a bit weaker, however, and economic inactivity continued to rise - especially amongst men - with long-term sickness a major reason.

Pay continued to increase, with average weekly wages up 3.9% year-on-year to £689 (including bonuses). This exceeded inflation, so the “real” value of wages was up and workers became better off.

However, the gap between nominal pay growth and inflation has shrunk since spring and therefore the rate of real pay growth has declined.

IGD opinion

Weakening wage growth, coupled with weakening inflation, raises the likelihood of a further interest rate cut in the near future.

This will be welcomed by many, but it is not really possible to use base rates as a means of delivering improved general prosperity – for most, higher prosperity must come via wages.

Reasons for the slowdown in wage growth are not clear, but it may be that employers cannot support further large pay rises until economic conditions pick up and business performance improves.

If this slowing trend continues, we should expect impacts for shoppers and the businesses that serve them. Consumer confidence may waver, and demand may dip, threatening the developing economic recovery.

A key challenge for the new government is therefore to increase real prosperity and to ensure that work pays, allowing consumers to support themselves and to achieve social advancement via employment, without fuelling inflation.

Taking a look at the longer-term picture, we can see that this is an ongoing problem. Despite recent changes, the average real wage in the UK has not really increased since around 2008.

Strenuous effort since then, under various governments, has not yet succeeded in restoring real wage growth – some new, innovative ideas may be called for and, even then, the problem will not be solved quickly.

Food and drink businesses should note that, even if wage growth across the total economy slows down, it may be necessary to go on increasing remuneration within the industry, in order to recruit and retain workers.

IGD food inflation forecasts assume that labour costs will continue to exert inflationary pressure for at least the next 12 to 18 months.

One reason is not only competition for labour within a tight market but also the unique challenges faced by food and drink businesses – remote sites, unsocial hours and – in particular – perceived low desirability of jobs.

IGD’s Mmmake Your Mark campaign, delivered in association with our friends from across the food industry is now in full swing and aims to address this issue.