GOING UP
Wages rise for millions of workers – what it means for your money
WAGES are rising for millions of workers across the UK, and for the first time in two years have outstripped inflation.
Official figures released today by the Office for National Statistics (ONS) reveal regular pay, excluding bonuses, rose by a near record 7.8% in the three months to August this year.
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Taking into account inflation, which measures how much prices are rising, it means that wages increased by 0.7%
The ONS also revised up figures for the previous three months to July to 7.9%, which means real earnings increased by 0.1% for that period.
If pay rises by less than inflation it squeezes income, leaving people worse off.
But wages are now rising faster than prices for the first time since October 2021, easing pressure on hard-up households.
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Inflation is easing and fell to 6.7% in August, having reached a 41-year high of 11.1% last October.
Official figures due out on Wednesday are expected to show another decline to 6.6%.
The latest figures also showed that pay growth is starting to ease back for the first time since January.
This could prompt the Bank of England to hold off from further interest rate rises, experts have said.
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The Chancellor of the Exchequer, Jeremy Hunt said: "It’s good news that inflation is falling and real wages are growing, so people have more money in their pockets.
"To keep this progress, we must stick to our plan to halve inflation."
Meanwhile today's figures also show growth in average total pay, which includes bonuses, was 8.1% in June to August.
This was affected by the NHS and civil service one-off payments made in June, July and August 2023.
Annual growth in real terms (taking into account inflation) for total pay rose by 1.3% in June to August.
Annual average regular pay growth for the public sector was 6.8% in June to August 2023 and is the highest regular annual growth rate since 2001.
For the private sector this was 8% and one of the largest annual growth rates since the Coronavirus pandemic.
The finance and business services sector saw the largest annual growth rate at 9.6% and this was followed by the manufacturing sector at 8%.
This is one of the highest annual regular growth rates for the manufacturing sector since comparable records began in 2001.
The average weekly earnings for total pay were estimated at around £661 and for regular pay were £619 in August 2023, showing a steady increase.
The ONS usually publishes unemployment figures at the same time as wage statistics but these are now being published next week.
What it means for your money
A growth in wages is good news for millions of workers who have been battling against high inflation in recent months.
Alice Haine, personal finance analyst at Bestinvest, said: "The cooling jobs market appears to be finally feeding through to wage growth, with pay rises easing slightly after a summer of bumper increases.
"It means incomes are finally gaining in value after being pummelled during the cost of living crisis."
While high wage growth can ease the pressure off households it does run the risk of fuelling inflation if businesses pass on that cost to customers by increasing the price of goods and services.
This would add extra pressure to household budgets at a time when energy prices are under threat from geopolitical tensions and rising demand as the colder weather sets in.
Ms Haines added: "For those with no reserve funds in place, now is the time to clear expensive debt, rein in unnecessary expenditure and gradually build up a financial reserve.
"To start this journey, set a savings target then open a new account with a high-interest rate - separate from your current account - and automate a small payment into it at the start of each month to protect the emergency pot from being swallowed up by everyday expenses."
The Bank of England may use the latest figures as in indicator for its next rate decision on November 2.
Samuel Tombs at Pantheon Macroeconomics said the slight easing in the pace of wage growth – an inflation indicator that is closely watched by the Bank of England – should enable interest rate-setters to hold off from further rises.
Rising wages have previously been blamed for keeping inflation high by Bank of England bosses.
The Bank’s Monetary Policy Committee (MPC) lifted the base rate by 0.25 percentage points to 5.25% in August.
It kept it at that in September easing pressure on homeowners facing rising mortgage rates.
High-street banks use the BoE base rate to work out the interest rates it offers to customers.
A hike means the cost of borrowing, including loans, credit cards and mortgage repayments become more expensive.
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Mr Tombs said: “Signs that wage growth is losing momentum should persuade the MPC to keep Bank Rate at 5.25% again next month,” he said.
He added the Bank is likely to hold rates at 5.25% until next spring “and then to reduce it to about 4.5% by the end of 2024”.