Which sectors are leading the UK wage increase?

The Bank of England is under pressure to raise interest rates further as UK wages are increasing at the fastest rate in history and faster than most other major economies.

The official figures show that the nominal pay of the regular workers, excluding bonuses, increased at a rate of 7.8 percent annually in the three-month period ending June. This is the fastest since 2001, and faster than the US or the eurozone where wages are only rising by 4%.

The markets believe that the Federal Reserve, the European Central Bank and both are nearing or at their peak interest rate. However, they predict that the British central bank will increase them another half-point to 5.75 percent by the end the year.

Official figures show that although the UK labour market tightens, the demand for workers is still greater than the supply. There were over 1mn job vacancies unfilled in the three-month period ending July.

The impact of rising interest rates is only now beginning to be felt in the construction sector, where pay growth has slowed.

Retail wage growth of 7.7% in the three-month period ending June, % change annually

The UK’s biggest retail employers say that the cost of labour will continue to be a problem, even as input prices fall.

Ken Murphy, Tesco’s Chief Executive Officer, said: “You just need to distinguish between structural inflation and transitory price increases.” We see structural wage increases in our system from our producers, supply chain, and retail operations.

The Office for National Statistics reports that retail wages rose 7.7% annually in the quarter ending June, compared to a 6.7% increase in the previous three-month period.

In other sectors too, wages are rising due to the shortage of workers caused by Brexit and pandemic.

Nadine Haoughton is an organizer at the GMB. She said, “Obviously, there’s been the impact Brexit and migrant labor, as well as the impact the post-Covid look, when people reassessed their willingness to work.”

Aldi, and Lidl have already raised their pay rates to attract employees. Other retailers have been urged to follow suit.

In the three-month period ending June, there was a 6.5% increase in wages for accommodation and food services.

Hospitality businesses are forced to pay generously to retain their staff due to high vacancy rates. According to the ONS, there are 124,000 vacant jobs in this sector.

Restaurants, pubs, and hotels have also seen their wages rise as a result of the government’s decision.

The ONS reported that wages in accommodation and food service rose by 6.5 percent annually in the 3 months ending in June. This is up from the 4.4 percent increase in the previous three months.

Jonathan Neame of Shepherd Neame pub chain and brewery, the chief executive officer of the sector, said that the increase in minimum wage was “the main driver” of wage increases.

Since Brexit, there are fewer people working in the hospitality industry in general, and everyone has had to raise wages.

In the three months to June, there was an 8.2% increase in wages in the manufacturing sector.

The UK’s severe shortage of labour is forcing manufacturers to raise wages. This adds to the pressure on employers, who have been forced to spend more money on energy and parts in the last year.

The pandemic, an aging workforce, and the loss in EU workers due to Brexit are all factors that factory owners have to contend with.

Verity Davidge is the director of policy for industry group Make UK.

According to the ONS there were 70,000 vacancies within the sector in the three-month period ending in July. Wages rose by 8.2 per cent annually, up from 6.4% in the previous 3-month period.

In some specialized jobs, wages have risen even more. According to an industry survey published in June by Make UK, the annual salaries of sheet metal workers have increased by 35 percent.

Manufacturers are also under pressure from the rising minimum wage and cost of living crisis to raise wages for factory workers who earn less.

In the three months to June, there was a 5.8% increase in wages in the construction sector.

The construction industry is feeling the impact of higher interest rates and reduced public spending. Wage growth has also been slowed.

In the three-month period ending in June, the annual pay increase was 5.8 percent, down from 6.5% the quarter before.

Housebuilders have been hit by higher mortgage rates and a decline in home sales. The government has also ended its Help to Buy program. A delay in the publication of the National Infrastructure and Construction Pipeline and the decision to stop work on some parts of controversial high-speed rail HS2 have hit the wider industry.

The Construction Industry Training Board, however, found that “the need to recruit and maintain talent in this sector has never been greater”.

“Between the year 2021 and this one, there is a gap of about a decade. . . Mark Reynolds, the chief executive of Mace, a consultancy and construction company, said that there had been a great deal of staff turnover. “That is primarily the reason we saw an increase in salaries.”

He said that the market conditions are causing wage growth to “flatten off”.

In the three-month period ending June, there was a 9.4% increase in wages in the finance and business services sector.

High street lenders are among the biggest beneficiaries as interest rates increase.

Mark Mullen is the chief executive of Atom Bank, a digital lender. “Since rates have started to rise, banks, especially big ones, have made a lot more money,” he said. “To put things bluntly, the bankers are the ones who benefit from profits.”

As in other industries, persistently high inflation is also a factor driving wage growth. The official figures show that the wages of finance and business services grew at a rate of 9.4 percent annually in the quarter ending June. This is up from an 8.8 percent annual increase in the previous three-month period.

In the first half 2023, staff costs increased by approximately 4 percent year-on-year at Lloyds, NatWest and Barclays.

At a July earnings call, Lloyds CEO Charlie Nunn said: “We are seeing cost inflation in many areas.” “We see it in wages, and that’s a large part of our total operating expenses [representing] about 40% of the total.”

Unions have pressed firms to increase wages again in the middle of the year. Some high-street lenders, including Santander, NatWest, and Lloyds, increased the wages of less senior employees in 2022 by 4 to 5%, while others offered additional lump sums.

However, there are some signs that wage growth in the highest-paid roles could slow down. This year has seen a relative lack of M&A activity in investment banks, leading to thousands of job losses and bonus cuts.

In the three months to June, there was a 6.8% increase in wages in the health and social services sector.

Since last December, the UK taxpayer-funded healthcare system has seen its biggest wave of industrial actions in decades. Staff have been fighting to increase recruitment and restore wage levels that were eroded by inflation.

Helga Pile, vice-head of health for Unison, the union said that the industrial action was fueled by a cost-of-living crisis. The inflation rate outpaced the pay levels at a time when other industries made more generous offers.

“Many employers in the private sectors were increasing wages and this was something that many NHS employees simply could not ignore,” Pile said.

The official figures indicate that the pay for health and social workers rose by 6.8% annually in the 3 months up to June. This is an increase from the 5.3 percent in the previous three months. However, the number of vacancies in the health sector remains at a record high.

The pressure on wage bills in the sector should ease up next year. Danny Mortimer said that while disputes with key groups remain unresolved with doctors, there is “a short-term effect” from how last year’s wage disputes with non-medical groups were settled.

The majority of unions have accepted one-off payment for 2022-23 as well as an increase in pay for 2023-24 by 5%.