Despite a productivity crisis affecting Britain’s workforce, wages have seen more growth over the past 12 months than in the preceding 16 years, according to research from the Resolution Foundation.
When adjusted for inflation, real earnings rose by about 2% in the year up to February, enhancing the purchasing power of workers compared to a year ago. This development marks the end of a period spanning over a decade where wage increases barely outpaced inflation and sometimes lagged significantly during the cost of living crises.
The think tank cautioned, however, that wage increases without corresponding productivity gains could lead to higher business costs, potentially driving inflation up and causing interest rates to stay elevated for an extended period.
Over the past year, productivity has decreased, with a 0.6% drop by the end of the fourth quarter of 2023. Gregory Thwaites, an economist at the Resolution Foundation, noted: “Workers are now able to buy more with their wages even as their productivity in their jobs declines. While this wage growth has helped protect household incomes, it could concern the Bank of England since real wages are rising faster than worker productivity.”
The Bank of England, under Governor Andrew Bailey, is looking for clear signs of inflation control before considering lowering interest rates from their 16-year peak of 5.25%. The central bank’s Monetary Policy Committee is particularly focused on robust wage growth, which has been fueled by many workers changing jobs for better pay.
Recent trends, however, suggest a stabilization in this dynamic. According to the latest Labour Market Outlook report by the CIPD, released on Monday, more employees are opting to stay in their current roles for increased job security rather than pursuing higher-paying opportunities. The report indicated that 55% of employers expect to keep their workforce numbers stable as employee turnover decreases.
