1 month ago
In a welcome turn of events for the British workforce, recent data reveals that average pay growth has finally moved past inflation after nearly two years lagging behind. This fresh optimism accompanies a complex economic landscape where the cost of living, wage growth and inflation remain a delicate balancing act.
According to official ONS figures, wages in the UK surged by an annual rate of 7.8% between June and August 2023, exceeding the average inflation rate for the same period. This development marks the first time since October 2021 that wages have outpaced inflation, undoubtedly bringing a sense of relief to many British households.
It’s important to remember that this growth is an average figure, and not all parts of the workforce are feeling the same relief. The significant gap between public and private sector pay is a stark reminder of this fact. During the same period, public employees saw their wages increase by 6.8% compared to 8% in the private sector. Despite this, it’s the biggest increase for public sector workers since 2001.
Various industries have experienced varying degrees of wage growth. Finance and business services, along with manufacturing, were among the biggest beneficiaries. On the other hand, construction workers saw the lowest growth, with just a 5.7% rise between June and August.
Though inflation has been slowing, it remains relatively high at 6.7% for the year up to August, more than triple the Bank of England's 2% target. In response, the BoE has taken measures to curb inflation, primarily by increasing interest rates.
Borrowing costs remained stable at 5.25% last month, with analysts suggesting further interest rate hikes may not be imminent.
One of the key indicators of the state of the job market is the number of vacancies. Recent data shows a decrease of approximately 43,000 open job vacancies between July and September. While property businesses were hit hardest, with a 30% drop-off, the total number of jobs remains higher than pre-pandemic levels.
Economists predict that wage rises may slow down as inflation begins to ease and employers adapt to higher interest rates. More comprehensive unemployment figures, expected to be released soon, might add to the picture of a weakened job market, as previous releases showed a loss of over 200,000 jobs before the summer.
SMEs are crucial components of the British economy, and the relationship between wage growth, inflation and interest rates significantly affects their operations. Many businesses are currently grappling with rising energy and insurance costs and a decline in demand, making it challenging to cope with an increasing wage bill.
Building supplies firm Ketley Brick, which employs 64 people, is currently facing up to tough decisions. Despite increased expenses and low demand, they're committed to paying all employees at least the national living wage, which will significantly rise in April 2024.
For business owners like Alex Patrick-Smith, maintaining employment levels is a priority: "This has unfortunately arrived at a time where it's been very, very difficult for us. Without a workforce that is going to be here when we come through the other side, we're not going to be able to produce at the level that we would like to. So we're doing everything we possibly can to maintain the levels of employment."
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Adapting to a growing wage bill may be a challenging act for SMEs. Fortunately, options are available to help bridge the gap between their existing capabilities and the higher wage costs.
While business loans can be a valuable resource, it's vital for businesses to carefully consider their financial strategy and seek professional advice when exploring this option. By using business finance wisely, SMEs can weather the challenges presented by wage rises and thrive in the evolving economic landscape.
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