UK wages rise at record rate but fail to keep up with inflation - will Bank of England hike interest rates?

Wages in the UK are rising at a record pace but are still failing to keep up with sky-high inflation, new figures have revealed.

The Office for National Statistics (ONS) reported on Tuesday (11 July) that average regular pay from March to May of this year was 7.3% higher than from the same period in 2022. This represents the joint highest increase since records began in 2001.

It comes as workers have sought pay rises in order to keep up with the soaring cost of living, but with annual inflation standing at 8.7%, this rapid increase is still not enough to stay in line with the rising costs of everyday essentials like food.

The latest figures about salary growth have also fuelled fears that the Bank of England will implement further interest rate hikes in an attempt to curb inflation. Essentially, the concern is that companies will be under more pressure whilst paying their employees higher wages - which could force them to increase the prices for their goods even more.

Recently, the Bank of England has raised interest rates 13 times in a row in an attempt to reduce the rate of inflation - but it has remained stubbornly high.

Commenting on the figures, ONS director of economic statistics Darren Morgan said: “Pay excluding bonuses has again risen at record levels in cash terms. Due to high inflation, however, the real value of weekly earnings are still falling, although now at its slowest rate since the end of 2021.”

He added that the new data also showed that job vacancies fell by 85,000 to 1,034,000 in April to June, in comparison with the previous quarter, marking the 12th consecutive drop as hiring firms come under continued pressure.

Meanwhile, Chancellor Jeremy Hunt commented: “Our jobs market is strong, with unemployment low by historical standards. But we still have around one million job vacancies, pushing up inflation even further. Our labour market reforms – including expanding free childcare next year – will help to build the high-wage, high-growth, low-inflation economy we all want to see.”

But Labour was critical of the statistics, with shadow work and pensions secretary Jonathan Ashworth remarking: “These figures are another dismal reflection of the Tories’ mismanagement of the economy over the last 13 years.

“Britain is the only G7 country with a lower employment rate than before the pandemic, and real wages have fallen yet again – just as more and more families feel the devastating impact of the Tory mortgage bombshell.”

On Monday (10 July), the governor of the Bank of England, Andrew Bailey, said reducing inflation is "so important" as people "should trust that their hard-earned money maintains its value".