According to economists, Brexit has increased wage growth for UK as predicted by the Leave campaign.
Senior City analysts stated that the near-record wage growth was partially driven by a crackdown against uncontrolled immigration from EU. Employers were forced to pay more for roles filled by low-skilled Europeans.
Marion Amiot is a senior European Economist at the rating agency S&P. She said: “It is much more difficult to recruit people from Europe, so UK-based employees have better bargaining strength and can therefore get higher wages.”
Ms Amiot stated that the UK labour market is undergoing structural changes which are forcing wages up.
Mabrouk Chetouane is the head of global strategy for the French investment bank Natixis. He said that the changes in the labor market were “obvious”, but that Brexitappeared “taboo” to talk about.
He said: “We’ve got a decent demand for labour, but when you take a look at the supply it has been massively reduced due to Brexit.” This imbalance fuels wage growth, and the situation will continue to be this way.
These comments follow figures released last week that showed wages, without bonuses, growing at an almost record pace of 7.7pc. This is only 0.1 points lower than the summer peak, which was highest since comparable data started in 2001.
During the referendum campaign, Leave campaigners repeatedly claimed that leaving the EU would increase pay in Britain.
In a letter from May 2016, signed by Michael Gove and Boris Johnson, Gisela Stewart said: “Wages for workers outside the EU will be higher… because wages will no longer be undermined by uncontrolled immigration.”
Ms Amiot stated: “It’s true in the end.” We have seen that immigration on a net level is still high, but the immigrants are not the same, and their skill sets are different.
In the year ending June 2022, net migration hit a new record of 606,000. Many of these arrivals, however, were either highly-skilled workers who came to fill roles that are hard to recruit or people from Ukraine, Hong Kong, or other countries fleeing persecution.
Jack Kennedy, senior economist for the hiring website Indeed, believes Brexit is “certainly” likely to contribute to faster wage growth than expected in lower-skilled positions.
Mr Kennedy said that “Our Indeed wage tracker data show that many of the categories with the highest wage growth are those where we know Brexit was an aggravating factors in terms of filling staffing gaps.
Our data shows that the wage growth rates for many lower-paid sectors range between 7pc to 10pc.
Economists have highlighted that Brexit is just one factor contributing to the UK’s surprisingly high wage growth.
Another factor driving wage growth is the rise in long-term illness following the pandemic and a wave early retirements post-Covid.
Ms Amiot stated: “Wage Growth is Much Stronger Than What Usual Drivers Would Tell Us.” This suggests that the labour market may be tighter than what we thought because of the changes in the dynamics of labour supply.
She added that the Bank of England underestimated Brexit’s impact on wages and may not have been able to accurately predict how quickly wages would increase in response to high prices.
At a recent conference, Governor Andrew Bailey stated that the UK’s economy was less open after leaving the EU. However, new trade relationships will be formed over time, as I am sure you are aware.
He said: “As an official of the public, I do not take a position on Brexit in general.” It was the decision of the British people.
In recent reports, the Bank alluded to Brexit’s impact on the job market. It stated that the economy’s ability to match employees with jobs had weakened over the past few years.
In order to avoid stoking the inflation, policymakers think that unemployment should be higher.
The UK’s inflation has been higher and stayed higher longer than other similar economies due to the soaring wages.