Annual growth in regular pay rose to 7.8% in the three months to the end of June 2023 – the highest annual increase since records began in 2001.
Growth in total pay, which includes bonuses, was similarly high at 8.2%, according to the Office for National Statistics (ONS) labour market figures for August 2023. It said the large jump in this figure, from 7.2% in March to May, was mainly driven by the one-off bonus paid to NHS staff in June.
However, high rates of inflation had a significant effect on employees’ pay in real terms. When adjusted for inflation using the CPIH measure (which includes housing costs and was 7.3% in June), total pay in April to June 2023 rose by only 0.5% while regular pay increased by just 0.1%.
Impact of inflation on wages
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Annual average regular pay growth was 8.2% in the private sector and 6.2% in the public sector.
The finance and business services sector saw the largest annual regular growth rate at 9.4%, followed by the manufacturing sector at 8.2%. This is the highest annual regular growth rate for the manufacturing sector since 2001.
Jon Boys, senior labour market economist for the CIPD, said: “The labour market remains competitive, and this is clear from the record-breaking regular pay growth of 7.8%. This only resulted in real growth of 0.1% after inflation was factored in, but we can finally say that pay is growing.
“While this may be good news for workers, high nominal pay rises are now an established feature of the labour market and this will worry the Bank of England who will be keen to mitigate the effects of a wage-price spiral.
“Even once pay starts to rise in real terms it will be some time before the ground lost during the squeeze will be made up. Employers are uniquely well-placed to understand their employee’s financial situation, and uniquely well-placed to help. To alleviate the burden, employers can make fringe benefits work harder. Benefits such as flexible working to reduce commuting costs, childcare support and occupational sick pay can make a big difference to people’s financial situation and wellbeing.”
Kate Shoesmith, the Recruitment and Employment Confederation’s deputy chief executive, said: “The labour market remains tight enough to continue to put pressure on employers by pushing up pay, with the highest regular annual growth rate we have seen since comparable records began in 2001 – but much of this will be down to recent pay deals negotiated and is one to watch closely.
Even once pay starts to rise in real terms it will be some time before the ground lost during the squeeze will be made up.” – Jon Boys, CIPD
“Pay is important, but it is not the only thing employers should consider. Today’s workers weigh pay against the whole package, such as flexible working, training, annual leave – and even whether the corporate culture aligns to their personal values.”
The ONS labour market figures for August 2023 also showed a decrease in the number of vacancies in May to July 2023. This is the 13th consecutive fall in vacancies, which were down by 6% from February to April 2023.
The industries showing the largest falls in vacancies were professional, scientific and technical activities and administrative and support service activities which fell by 13.2% and 12.7% respectively. On the other end of the spectrum, vacancies in real estate activities and electricity, gas, steam and air conditioning supply grew by 17.4% and 11.9% respectively.
In April to June 2023 the number of unemployed people per vacancy was 1.4, up from 1.2 the previous quarter.
Aside from ongoing recruitment challenges, we are also seeing employers struggling to shoulder the April national minimum wage and living wage increases, especially those in hospitality and retail, due to the volume of lower-paid workers.” – Sarah Loates, Loates HR Consultancy
Economic inactivity due to long-term sickness stood at a record 2.58 million, according to the August 2023 labour market figures.
Sarah Loates, director of Derby-based Loates HR Consultancy said: “It’s really tough in the jobs market right now and the rise in the unemployment rate is a real cause for concern. We’ve seen a slight uptick in redundancy enquiries, only a trickle at the moment, and we hope it doesn’t turn into a tsunami.
“SMEs are increasingly planning for worst-case scenarios, but we’re hoping they don’t have to enact their plans. Aside from ongoing recruitment challenges, we are also seeing employers struggling to shoulder the April national minimum wage and living wage increases, especially those in hospitality and retail, due to the volume of lower-paid workers. This is also causing a knock-on effect for leader-level roles in these sectors, as the gap between entry-level positions and team leaders is squeezed.”
Jack Kennedy, senior economist at Indeed, said: “There are few signs of workers becoming more reluctant to switch jobs, as job-to-job moves jumped above 900,000 in Q2 and remain elevated compared to pre-pandemic levels. The redundancy rate ticked higher over the quarter but remains low by historical standards.
“The ongoing rebalancing of the labour market means candidates no longer hold all the power and we’re seeing signs of employer behaviour starting to shift, for example around hybrid work. The share of job postings mentioning remote or hybrid terms appears to have topped out and has fallen from 16.3% to 14.6% over the past three months. That could be a sign of employers being less likely to accommodate worker preferences amid a labour market that, while still tight, is less challenging from a recruitment perspective than a few months ago.”
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