Pay Rises Could Fuel Inflation

A pound coin being squeezed in a vice
Author: Samuel Beckingham
Updated: Jul 19, 2023
3 minutes read

Despite several strikes still ongoing since they were threatened last year, average pay has risen by 7.3%, which is fuelling concerns that the UK is in the holds of a spiral of inflation. In the three months to May, this pay jump was recorded, which was up from last year, but these increases are still below the rate of inflation.

Growth in average pay, including any bonuses, was 6.9% from March to May. This is the highest increase in rates since the pandemic. However, the ONS was quick to point out that in real terms, increase in total and regular pay had actually fallen year on year in that time period by 1.2% and 0.8%. Due to high inflation, weekly earnings are still falling.

The finance and business services sector had the largest growth recorded, at 9%, just above manufacturing at 7.8%. Manufacturers haven’t had such a big increase at least since 2001, which was when records began. The private sector saw a massive increase of 7.7%, but the public sector trailed behind at 5.8%, which was almost a 22 year high.

These pay rises are expected to increase inflation or keep it higher for longer. Some economists believe the 6.9% growth is not a good outlook for those with mortgages as it could mean that if inflation remains stubborn, the Bank of England could potentially raise rates to 7%. Others are less pessimistic, believing that a rise to 5.25% or 5.5% is more likely, but this depends on the CPI data for June.

Rishi Sunak decided to give one final offer to public sector striking workers by agreeing with the independent pay review bodies. Despite a lack of negotiations and at least 7 months’ worth of strikes, some public sector workers aren’t happy with this result and will choose to continue to hold industrial action. Despite the government choosing the war of attrition, workers have shown remarkable resilience in the face of mounting costs.

Now the Prime Minister has even more of an issue on his plate as his goal of halving inflation before the year is out may not be looking feasible. Handing these real-term wage decreases to workers that have been striking since 2022 is not only all the summary needed of the current government, but also a worry for inflation levels. Of all G7 countries, the UK is still the only one with lower unemployment since pre-pandemic levels.

In April 2023, MPs’ basic pay was unnecessarily increased by 2.9% to a staggering £86,584. This is up from £81,932 in 2021. If you adjust MPs’ pay for inflation, the only real-term pay cut they received was 0.6% between 2010/2011 and 2021/2022. As well as being able to claim on expenses, MPs can rely on other forms of parliamentary income. Those running the country are so far out of touch with the struggling electorate, it’s no wonder they opted for the war of attrition against public sector workers.

Curious to see how your real-term pay cuts compare to MPs? Use the handy graph on National World’s website to find out.