Record pay growth reaches parity with inflation

Date : 16 August 2023

UK workers continue to benefit from record pay growth, which has now reached parity with inflation. ‘Real wages’ have been in decline for over a year and there is a long way back for wages to regain their pre cost of living crisis position.

In June 2023, average weekly pay (excluding bonuses) was up 7.8% year-on-year, according to the latest release from ONS. This is the highest rate of growth since comparable records began in 2001. Average pay reflects wage changes across the entire economy. This is expected to differ by industry sector and job role.

Total pay growth (including bonuses) was further strengthened to 8.2% by a one-off bonus paid to NHS staff in June.

Record pay growth over recent months, coupled with falling inflation has meant that wage growth now matches price rises across the economy. ‘Real wages’ are no longer falling across the economy following over a year of decline.

Pay growth for private sector workers continues to strengthen, up 8.2%, the largest growth rate seen outside of the pandemic period. Public sector pay continues to rise, up 6.2% year-on-year, this is the highest growth rate in public sector wages since 2001.

Click chart to enlarge

IGD Viewpoint

For over a year, real pay for UK workers has been in decline, as inflation ran ahead of pay. This has led to significant losses in real incomes for many households.

Over recent months, as inflation has weakened, pay growth has strengthened, in part due to continued tightness in the labour market.

This has allowed workers’ pay growth to move back in line with inflation, ‘real’ wages are no longer in decline.

However, after over a year of ‘real’ pay falling, it will take a significant amount of time for workers' incomes to recover back to their positions before the cost-of-living crisis.

Looking ahead, Bank of England data suggests that anticipated pay growth may be weakening a little. Businesses expect pay to rise by 5.3% next year, less than the current pay growth being experienced, but ahead of inflation expectations for next year.

Given the weak economic environment, businesses may be challenged to continue to raise pay as quickly as expected.

Labour shortages will be covered as part of our forthcoming Viewpoint Special report - Rebuilding resilience in the UK food supply chain. This will be available to download here from 7 September.

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