Economics – Is pay growth slowing?

Date : 14 October 2021

For immediate release

ONS data suggests that pay growth on the UK may be slowing slightly.

Top-line annual pay growth peaked in June 2021, but slowed slightly in July and August – both public and private sector show this effect. 

“Real terms” pay growth has also been eroded by rapidly-strengthening inflation. With all factors accounted for, real wage growth was about 2.5% in the 3 months ending August, compared with 5.3% in the 3 months ending June. 

This is still fairly high by historical standards – it is not uncommon for pay in the UK to be flat or even to decline in real terms – but it is somewhat puzzling. 

It is not clear why pay might be slowing - demand for labour remains extremely strong in the UK, suggesting that employers will attempt to raise wages rapidly wherever possible. 

One reason may be that the England’s first COVID-19 lockdown was wound-up, gradually, from June 2020 at which point business activity resumed and incomes began to rise. Pay levels in July and August 2020 therefore offer increasingly-tough “comparables” for the latest data. 

Looking ahead, inflation is expected to pose an increasing challenge, reducing the spending power of working and non-working households. IGD’s ShopperVista data suggests that consumers are once more becoming more downbeat after a brief period of increasing optimism.




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