Real wages in the UK over time refer to wages that have been adjusted to consider inflation, encompassing variations in living expenses. Unlike nominal wages, which indicate the exact amount a worker receives, real wages mirror the genuine purchasing ability of those earnings. When prices escalate, the purchasing power of a worker’s nominal wage decreases, leading to a decrease in their real wage. Conversely, when prices decline, the purchasing power of a worker’s wage rises, resulting in an increase in their real wage.
Real Wages in the UK over Time
The decline in real wages has been caused by numerous global crises, resulting in tens of millions of workers facing a dire situation, as reported by the International Labor Organization. Nevertheless, effective government management policies are crucial in addressing the economic crisis.
In the UK, real wages have experienced ups and downs. Currently, Brits are under the destructive pressure of low real wages. As lse reports, the financial crisis of 2008 triggered a recession. There were unprecedented falls in real wages in the UK after the recession in 2014.
Regarding recent changes, Office for National Statistics reports the latest Labour market data on wages and inflation. The data show that the average total employee pay rose 6.5% from February to April 2023 compared to 2022. However, in real terms (adjusted for inflation), growth in total income dropped by 2.0% over the same period.
Recent Rise in Normal Wages in the UK
The UK government still needs to successfully manage the destructive inflation problem and the cost of living crisis. There has been a rise in normal wages in England. However, considering the inflation rate, we can realize that the real wages are too low to save families from the cost of living crisis in the UK.
As The Guardian reports, wages increased faster than expected in May. Earnings growth hit 7.3% in the three months to May compared with a year earlier. This rise resulted from the most substantial advancement in the private sector pay increase of 7.7%. The Office for National Statistics says It was the joint highest since modern records began in 2001. City analysts had expected wage growth to ease to 7.1%
Similarly, BBC says UK wages have risen at a record yearly pace. The rise causes fears that inflation will stay high for longer. Regular pay grew by 7.3% in the March to May period from a year earlier, official figures showed, equalling the highest growth rate last month.
The Government is trying to bring down wages!
The Government is trying to reduce wages, claiming that high salaries lead to higher inflation. As The Guardian reports, the Bank of England governor, Andrew Bailey, and the chancellor, Jeremy Hunt, spoke at Monday’s Mansion House annual dinner in the City. They warned that wage restraint would be needed to bring down high inflation. The governor said current price and wage increases were inconsistent with reducing inflation, which is now at 8.7%. The Government’s target for inflation is 2%.
According to The Guardian, Paul Nowak says the government “must stop scapegoating workers for its failures .” Paul Nowak is the general secretary of the TUC. He adds, “Wages are not driving inflation – they are not even keeping up with it. Pay is even further behind in the public sector and lower-paid private sector industries.”
Decreases in wages mean more pressure on people. As BBC states, despite the record increase, pay rises still lag behind inflation in the UK.
Bank of England is trying to push up interest rates!
As The Guardian says, the Bank of England may increase interest rates. Increased wages have pressured the Bank of England to push up the cost of borrowing at its next meeting in August.
Some may say that Interest rates can affect inflation. When interest rates rise, borrowing becomes more expensive. This issue can discourage individuals from taking out loans to finance purchases. This can lead to a decrease in spending and economic growth. A slowdown in spending and economic growth can lead to decreased demand for goods and services. Then the decline in demand for goods and services can reduce prices and inflation.
Higher interest rates mean more pressure on Brits.
It is crucial to highlight that the Government is increasing interest rates to address its budgetary constraints. The Bank of England aims to extract more money from people’s pockets. However, there are more effective ways to tackle the UK’s inflation and cost of living crises than simply raising interest rates. Such a measure will only add further strain on families.
According to a report from The Guardian, the elevated joblessness figures and low job vacancies indicate that higher interest rates are detrimental to the economy. Samuel Tombs, the chief UK economist at Pantheon Macroeconomics, argues that the rapidly loosening labour market strengthens the case for the Bank of England’s monetary policy committee to halt its rate-hiking cycle soon. This suggests that alternative strategies should be considered to mitigate the challenges posed by the inflation and living cost crises rather than relying solely on interest rate increases.