There’s been lots of talk in the UK recently about how the balance of powers in the labor market has shifted thanks to a limited supply of workers and large numbers resigning, with many employers struggling to fill their vacancies. This has made companies offer higher salaries and wages to recruit workers, and UK wages have increased — at least, that’s how things look the surface. It’s recently emerged that the full picture is that the cost of living has risen by even more than wages.
Behind the figures
Recent figures from November 2021 revealed that the average weekly pay has increased to £510, compared to an average of £510 in November 2020. This sounds like good news, yet inflation soared to 5.1% in the same month, making it hard for wages to keep up. As a result, real pay actually decreased 1% in November after accounting for inflation. This figure excludes bonuses, but that alone is unlikely to change the numbers significantly.
Yet there’s even worse news — the Bank of England expects inflation to rise to 6% or more in spring 2022, which will make it even more difficult for wages to catch up.
Some are optimistic that, as the economy continues to recover from the pandemic and we get used to a low-labor-supply environment, wages will start to rise too. But this is far from a definite.
Impact of the rises
The consequences of this high inflation go far beyond making people tighten their belts. There are knockoff effects on businesses and the economy at large, with workers desperately needing pay rises yet many companies going through tough times and struggling to afford them. For instance, construction companies and restaurants to operate on very tight margins and are struggling to know how to react to the situation.
The UK government has taken some action by increasing the minimum wage to £9.50 an hour to account for inflation. However, some businesses say they can’t afford these numbers — they’ll therefore have to increase their prices to account for this, which could result in a snowball effect.
So, will everything calm down, or are we facing an increasingly high-inflation era? Only time will tell.
