GOING UP
Exact rate wages are rising revealed and what it means for your money – including pay rise and interest rate cuts
Plus we explain how inflation affects your money
WAGES are rising for millions of workers new figures reveal.
Growth in regular pay, excluding bonuses, was 6% in the three months to February this year.
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That's according to official figures released today by the Office for National Statistics (ONS).
In real terms, taking into account inflation, annual regular pay rose by 1.9%.
That compares to 6.1% for the previous three months to January this year, and 1.4% in real terms
If pay rises by less than inflation it squeezes incomes, leaving people worse off.
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Inflation is a measure of how much the price of goods and services is rising compared to the same period last year and currently stands at 3.4%.
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The latest figures show that in real terms, salaries jumped at the highest rate in almost two-and-a-half years, which means incomes are comfortably outstripping price rises.
Vacancies fell by 13,000 quarter on quarter in the three March to 916,000.
Britain’s unemployment rate has risen by more than expected and earnings growth has eased back once again in the latest sign that economic uncertainty is affecting the UK jobs market.
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The rate of UK unemployment rose to 4.2% in the three months to February from 3.9% in the previous three months.
Director of economics at ONS Liz McKeown said: "Recent trends of falling vacancy numbers and slowing earnings growth have continued this month albeit at a reduced pace.
"But with the rate of inflation slowing, real earnings growth has increased and is now at its highest rate in nearly two and a half years."
"At the same time, we are now seeing tentative signs that the jobs Market is beginning to cool, with both a fall in the headline employment rate from our survey and a drop in the total number of people on payrolls from HMRC data."
Rising wages is good for workers, as it means they have more money to spend.
But this can also push up the prices of goods and services (inflation), which us bad news for borrowers.
The Bank of England has hiked interest rates in the past to try and tackle high inflation.
It is expected to cut rates as inflation falls this year. The latest figures showing wages are rising could lead the BoE to reconsider when it cuts rates.
Last week one of the BoE rate-setters, Megan Greene, said interest rate cuts "should still be a way off".
Markets have now pushed back their bets, predicting the Bank will only start lowering rates from the current 5.25 per cent in August or September.
It is a big change from the start of the year when economists reckoned falling inflation would mean the Bank would start cutting in May or June with the rate falling to 4%t by Christmas..
The latest inflation data will be released tomorrow. The BoE will make its next rate decision on May 9.
Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, the wealth manager, said: “Wage growth has been easing since the summer of last year though the pace of that downward journey is slowing, which may not bode well for households pinning their hopes on an imminent interest rate cut to ease their borrowing costs.
"Expectations of an interest rate cut this summer have been mounting though the headline rate may remain higher for longer than hoped if wage growth remains robust or oil prices increase dramatically on the back of rising geopolitical tensions in the Middle East.
"The good news is that the UK already appears to be edging out of the technical recession it entered in the second half of last year with positive economic growth in January and February raising the likelihood of an expansion in the first quarter of 2024.
"For workers, salary rises may seem more muted as employers rein in costs to protect profits but the improving economic picture raises the likelihood that people will hang onto their jobs."
“With the recession already edging into the rearview mirror, some employers may prefer to retain existing staff rather than resort to redundancies to avoid recruitment struggles when the economy picks up again."
What it means for your money
Growing wages is good news, especially when it's higher than the rate of inflation.
It means households have more purchasing power and a lot of that money will go back into the economy.
But rising wages have previously been blamed for keeping inflation high by Bank of England bosses.
Wage growth can also sometimes spike inflation and that burden is passed back on to households with businesses increasing the price of goods and services.
The Bank of England may decide to hold its base rate which affects borrowing costs.
The rate is used by high street banks to set the interest rates it offers to customers, including loans, credit cards and mortgage repayments rise.
Rob Wood, chief UK economist at Pantheon Macroeconomics, said the rising unemployment rate and payroll fall will “embolden” Bank of England policymakers to look at interest rate cuts.
He said: “There is solid evidence the labour market slowed markedly in March.
“Rate setters will take note. Wages lag labour market slack, so these figures will likely embolden the Monetary Policy Committee to begin cutting interest rates this summer.”
He said the stronger-than-expected wage figures complicate the picture, with rises in earnings expected to be pushed higher by this month’s near-10% rise in the national living wage.
“Solid earnings growth in February will, we think, mean rate setters want to wait until June before lowering interest rates, so they can see the post-minimum wage hike data,” he said.
The National Minimum and National Living wages rose for millions across the UK this month.
This means some people would be better off by £1,800 a year.
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The minimum hourly rate for over 21s rose from £10.42 to £11.44 on April 1.
It gives an almost 10% cash boost to nearly three million workers who receive the national living wage and have seen their pay hit by inflation.
Why does inflation matter?
INFLATION is a measure of the cost of living. It looks at how much the price of goods, such as food or televisions, and services, such as haircuts or train tickets, has changed over time.
Usually people measure inflation by comparing the cost of things today with how much they cost a year ago. The average increase in prices is known as the inflation rate.
The government sets an inflation target of 2%.
If inflation is too high or it moves around a lot, the Bank of England says it is hard for businesses to set the right prices and for people to plan their spending.
High inflation rates also means people are having to spend more, while savings are likely to be eroded as the cost of goods is more than the interest we're earning.
Low inflation, on the other hand, means lower prices and a greater likelihood of interest rates on savings beating the inflation rate.
But if inflation is too low some people may put off spending because they expect prices to fall. And if everybody reduced their spending then companies could fail and people might lose their jobs.
See our UK inflation guide and our Is low inflation good? guide for more information.
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