The new Labour government in the UK has emerged from its landslide election victory promising to return the country to its economic highs. The latest evidence of workers’ wage growth will provide a good platform for the government to deliver on that promise.
Wages rose by 7% in the UK in the year to June, according to data from Indeed Hiring Lab. That’s almost double the rate in the eurozone, where wages rose by 3.7%, and more than double the growth in the US, which rose by 3.1%.
The results differ with the broader economic context of the three economies. The British economy is expected to grow at a slower pace than the eurozone and the United States this year, according to a report from the European Central Bank. Latest IMF Forecasts.
One explanation is likely to be that A significant increase In the United Kingdom National Living The wage is the legal minimum that employers must pay their employees over the age of 21.
The UK government’s mission is to keep the national minimum wage at two-thirds of the average UK wage, in line with the recommendations of its advisory body, the Low Pay Commission. This goal helps protect workers from falling into relative poverty.
Keeping pace with inflation and private sector wage growth meant the national living wage rose by 9.8% in April, its third-biggest increase since it was introduced in 2016. minimum The wage increase was greatest for young people aged 16 to 20.
Tony Blair’s Labour government introduced a national minimum wage in 1999. The UK minimum wage has risen by 70% since then. Meanwhile, the average wage has only risen by about 20% over that period, indicating a decline in wage inequality in the UK.
The Low Wages Commission estimated that about 1.6 million people were earning at or below the minimum wage in April last year, so increases in the base could have a significant impact on growth.
The National Living Wage contributed to the rapid growth in wages in the UK last year, but that is not the whole explanation, says Indred.
“The strong wage growth across all pay bands suggests that the UK’s 9.8% increase in the National Living Wage on 1 April is not the sole driver of higher wage growth, but is having a lasting impact on lower-paid salaries, alongside demand for labour in specific sectors,” said Paul Adrian, Head of EMEA Research at Indeed.
“With Labour planning to scrap age bands in the UK’s national minimum wage structure, low-paid professions could receive another boost.”
Labor says it will also allow the Low Wage Commission. Referral for expansion to include the cost of living, paving the way for larger increases in the national living wage in the future.
Inflation headache
While workers will welcome the pay rise, it could be the latest hurdle facing policymakers who want to cut interest rates.
The Bank of England has kept interest rates on hold. The base interest rate is fixed. 5.25% for about a year to combat rising prices.
Consumer Price Index hit the bank target Inflation is expected to rise to 2% in May. However, the central bank expects inflation to rise again in the third quarter, prompting it to postpone interest rate cuts.
Meanwhile, the country is losing momentum against the eurozone, where the European Central Bank became the first major central bank to cut interest rates in June.
Any hint of red-hot wage growth in the UK could prompt Bank of England rate-makers to rein in their already cautious interest rate ambitions.