UK wage growth accelerates despite cooling labour market

Wage growth accelerated in the UK in May even as the job market cooled according to real-time data that highlights the challenge the Bank of England faces in bringing inflation back to target.

The median wage cited in UK job adverts was 7.2 per cent higher last month than a year earlier, the fastest pace seen in data stretching back to 2019, based on a cross-country wage tracker published by the job search website Indeed, in collaboration with the central bank of Ireland.

Indeed said that while still high by historic standards, wage growth had slowed sharply in the US and steadied in most eurozone countries in recent months, after peaking in 2022. This reflected a decline in the ratio of vacancies to unemployed workers, a key measure of workers’ bargaining power. In the UK, however, growth in advertised wages had picked up pace even as hiring slowed.

“The UK is an outlier,” said Pawel Adrjan, director of EMEA Economic Research at Indeed. He added that the recent pay deal for nurses working in the NHS was one factor, and April’s increase in the statutory minimum wage could also have pushed up average wages.

But pay pressures could also be stronger in the UK than in other countries facing similar labour shortages simply because workers were facing higher inflation, he said.

Indeed’s tracker is less comprehensive than official statistics on earnings, but is a timely indicator of workers’ ability to secure a pay rise when they move jobs. The data will reinforce fears in the Bank of England that pay pressures are now amplifying the UK’s inflation problem, making it harder to bring it down to its 2 per cent target.

Clare Lombardelli, the OECD’s new chief economist, warned this week that the UK’s inflation challenge was more troubling than elsewhere because it had “a particular issue about the labour market”, with a post-Covid contraction in the size of the workforce raising pressure on companies to pay people more.

However, separate data published on Thursday will offer policymakers hope that labour shortages and wage pressures could ease later in the year.

A monthly survey by KPMG and the Recruitment & Employment Confederation found the number of candidates available for roles increased in May at the sharpest pace since 2020 — reflecting more widespread lay-offs and a slowdown in hiring.

It also suggested growth in starting salaries had begun to slacken, although the survey still pointed to pay growth well above historic trends.

Neil Carberry, chief executive of the REC, said there was a clear split between sectors where hiring was still strong — such as hospitality, construction and engineering — and weaker areas such as IT and retail.

“For hiring businesses, greater candidate availability will help resolve shortages,” he said. But he added that the people available for roles did not necessarily fit the sectors still keen to hire and that “inflation means wage growth remains high”.