Much to the concern of the Bank of England, British workers are continuing to bank inflation-busting pay rises. Figures just released by the Office for National Statistics (ONS) show that over the three months to February, the average worker received a pay increase of 5.6 per cent. Remove inflation and that works out as a 2.8 per cent real-terms rise.
The persistence of strong pay growth is likely to alarm the nine members of the Bank of England’s Monetary Policy Committee. They have repeatedly warned that they consider sustained wage increases to be a key sign of entrenched inflation. The committee has previously said it wants to see pay growth slow before resuming interest rate cuts. But this will now need to be weighed against fears of a recession, brought about by Donald Trump’s tariff turmoil, which have led markets to anticipate a faster pace of rate cuts for the rest of the year.
Of course, wages rising faster than inflation is a positive thing for household finances and casts doubt on claims of a continued cost-of-living crisis. It’s no bad thing for the average worker with more cash in their pocket. However, as Professor Joe Nellis of MHA warns, without accompanying productivity growth, higher disposable incomes risk fuelling consumer demand and driving up prices. The Bank wouldn’t mind persistent wage growth so much if productivity rose with it – but that just isn’t happening.
Meanwhile, the unemployment rate held steady at 4.4 per cent over this period, offering some relief to Chancellor Rachel Reeves. It suggests her £25 billion tax hike on employer National Insurance contributions and the rise in the minimum wage haven’t yet dented the jobs market. But it’s worth noting that given the period of the latest data, these figures only reflect employer sentiment ahead of those changes, not their actual impact – though there are early signs of anxiety.
For the first time since early 2021, the number of job vacancies in Britain has fallen below pre-pandemic levels. Vacancies dropped by 26,000 to 781,000 – marking the 33rd consecutive quarterly decline. There are now two unemployed people for every advertised job. What’s more, youth unemployment remains stubbornly high at around 13 per cent, with little evidence that firms are creating opportunities for younger workers.
Serious questions remain about the reliability of this data. The government has recently launched a review into persistent failings at the ONS, particularly around the frequency and scale of data revisions. Today saw more such changes, including ‘exceptional’ updates to wage figures dating back to October 2020. These revisions – prompted by data from a single employer – have significantly altered the historical record.
When I wrote about this upcoming revision last month, it seemed plausible that the employer in question was the government. Not so, according to the ONS. They still refuse to name the source, but the most substantial changes was in the 'wholesaling, retailing, hotels and restaurants’ sector. For instance, the regular pay growth in April 2022 for that sector was revised from 6.2 per cent to 7.9 per cent. Such a shift could have meaningfully influenced employer and employee behaviour had the true figure been known at the time.
Britain’s economic picture remains as murky as ever. Strong wage growth and a flat unemployment rate suggests resilience after months of cooling, but it also complicates the Bank of England’s job of taming inflation. Meanwhile, the reliability of the data used to assess these trends is increasingly under scrutiny. Those in charge of pulling our economic levers are flying blind more often than they should be – and that’s perhaps the most worrying trend of all.
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