UK wages hit near record increase but real still below inflation — explained

Wage increases not keeping pace with real wages in the UK. Why? We explain.

January 20, 2023
UK wages hit near record increase but real still below inflation — explained
CompareBanks is reader-supported. When you click through some links on our site, we may earn an affiliate commission. Learn more
Matt Crabtree

Written By

Matt Crabtree


Although wage growth has accelerated to its strongest pace in over 20 years, workers are still losing ground since their compensation has not kept pace with rising costs of living amid double-digit inflation.

  • Official statistics released on Tuesday revealed that the rate of wage growth in Britain, which is being carefully monitored by the Bank of England as it measures how much higher to hike interest rates, picked up speed in the three months to November.
  • Bonuses and base pay both increased by 6.4% from September to November, the largest yearly gain since records started in 2001. This excludes the large increases seen during the COVID-19 period, which were skewed by lockdowns and government assistance measures.
  • The Office of National Statistics (ONS) also reported a 6.4% increase in base salary for those that do not include bonus incentives.
  • However, the total compensation, as well as the ex-bonus measure, were forecast to increase by 6.2% and 6.3%, respectively, according to Reuters' survey of economic experts.
  • The ONS reported that the unemployment rate in Britain remained unchanged at 3.7%, which was in line with the predictions of the vast majority of economists surveyed by Reuters and was very near to the record low seen in the early 1970s.
  • Britain's high inflation rate, which is presently around 10%, is a major concern for the Bank of England, which fears that the acceleration in wage rise would make it harder to bring down.

Statistics from the Office of National Statistics show that, discounting bonuses, average wages were 6.4% greater in the three months ending in November compared to the same period a year earlier.

Excluding the spike following the pandemic when workers returned to their jobs with large increases after being on furlough, this is the strongest growth rate since 2001.

Even while earnings have gone up, employees' take-home pay has decreased. Wages failed to rise by 2.6% in real terms as inflation ate away at consumer spending power.

Inflation is at 10.7 per cent, according to the latest official numbers, suggesting that people's purchasing power has decreased.

Continuing the trend, private sector companies increased pay by an average of 7.2% while public sector employees experienced a far smaller increase of 3.3%.

ONS says jobless rate rises 0.2 points despite wage hikes

And meanwhile, joblessness remains high and rose to 3.7% from 3.5% in the previous quarter.

According to the ONS, the number of persons who have been unemployed for up to six months increased in the most recent period, with those aged 16 to 24 being the primary contributors.

Additionally, the number of persons out of work for six months to a year rose, while the proportion of those unemployed for more than a year fell.

According to Darren Morgan, head of economic statistics at the Office for National Statistics (ONS), employment levels remained basically stable from the preceding 3 months.

But according to Morgan, the number of individuals without jobs increased, particularly among young people who are just entering the labour force. This suggests that more people are working or actively seeking employment.

As per Morgan, the number of available positions decreased somewhat but remained high, with the number of persons actively seeking employment maintaining about constant.

Numerous people lost their jobs at companies including Amazon, Meta, and UK banks as a consequence of increasing interest rates, decreasing consumer demand, and a slowdown in China's economy.

Purchasing power also flagging behind wages, UK with half a million missed workdays

Pay is losing purchasing power as prices rise at a higher rate than wages. According to Morgan, this is still one of the sharpest falls in annual income since records started.

The ONS also reported that in November, strikes resulted in 467,000 missed workdays. Strikes have broken out in the public sector because pay growth there has lagged behind the private sector, which has seen growth of 7.2%.

The number of workdays lost this month due to strikes is the most it has been since November 2011.

Britain's labour market is strong, with a record number of people employed, despite global economic concerns, Chancellor Jeremy Hunt said.

Hunt also noted that maintaining the goal of halving inflation this year is the single most effective approach to make people's paychecks go farther. Doing anything that may permanently instil high costs into our economy would simply prolong the agony for everyone.

British housing costs peaked in November 2022

The UK economist with Capital Economics, Ashley Webb, said that the increase in salaries will “only add additional weight” to the argument for the Bank of England to hike interest rates again, even if wages had not increased in step with inflation.

Webb said the BoE's worries that inflation, although dropping, is nonetheless persistent and will be exacerbated by the continued strength of the labour market and wage increases.

According to Simon Harvey, the director of FX research at Monex Europe, rising average wages would likely convince the Bank of England to hike interest rates by 50 basis points next month after going against 2022’s mini-budget.

According to Harvey, the BoE is not likely to put too much focus on leading indicators of a cooling workforce demographic before the picture becomes abundantly obvious across all metrics. This comes after Bank of England chief economist Huw Pill spoke last week, putting greater focus on income growth as a source of continual inflation over the near term.

In light of this, Harvey said that the Bank of England is unlikely to “count its chickens” before they have hatched, even if the latest data suggests a cooling in labour market conditions and a potential weakening in wage pressures. He anticipates that the general opinion of a 50 basis point increase at the meeting in February will hold.

The latest inflation numbers for the UK are scheduled for publication on Wednesday.

What pay rise should I expect in 2023 (UK)?

According to a recent study's findings, a 9% wage increase is seen as a reasonable reward for UK workers in 2023. 

While much greater than most previous salary raises, that amount is still below inflation, which is now estimated at 10.7% (Consumer Price Index). In general, the average was different among industries.

In general, the average was different among industries. Workers in the hotel and healthcare industries hoped for raises of 10% and 11%, respectively.

According to the CEO of the insight platform that performed the study, Nate Harwood, most workers are prepared to accept a real terms decline in their living standards even if 10% of them feel they deserve a rise of more than 15%.

What is the average private sector pay rise (2023)?

Pay inequality between the commercial and public sectors has been growing for some time. Year-over-year wage increase in the public sector was 3.3% in September, while it was 7.2% in the private sector. Beginning in around March of 2021, this chasm has begun widening.

Taking into account incentives, average weekly wages in November 2022 were 6.5% higher than in November 2021. Outside of a pandemic, this is the fastest rate of increase.

Although employment has increased due to strong demand and low supply, most employees have seen their earnings decline in “real terms” as a result of inflation.

Using the more inclusive RPI measure of inflation that more accurately accounts for rising housing prices, “real earnings” have been on a downward trend since October 2021 and are down 7.1% year over year as of the end of March 2022.

The growing chasm is a primary factor in the increase in the frequency with which strikes cause businesses to lose workdays since the summer of 2022.

As of November 2022, the amount of missed days was the most it has been since November 2011. It's anticipated that December's number will be much higher.

Why are there so many strikes in the UK?

It’s a complicated picture. However, it boils down to not having enough pay to meet real living costs. 

Why is the UK having so many strikes? Why have railway workers been on strike? Unions and train corporations are at odds over salary, job losses, and other changes in working conditions. The unions argue that any salary proposal ought to account for increased living expenses.

The current rate is more than 10%. However, the need to cut costs has increased in the train business as a result of the pandemic's effect on its profitability.

Network Rail plans to eliminate 1,900 positions as part of reorganising its maintenance teams, while it maintains that most of these layoffs could be avoided if employees choose to leave willingly.

The RMT has expressed disapproval of some modifications and has requested assurance that no member of the workforce would be forced to find other employment.

UK, 2023: Royal College of Nursing NHS strikes — NHS strikes 6/7 February 2023 planned

When was the last NHS strike? / When is the next NHS strike?

The nurses of the National Health Service (NHS) are planning a strike for the month of February as part of their largest demonstration against unequal pay and hazardous staffing to date.

The Royal College of Nursing has said that, given a “refusal” of the UK and Welsh governments to engage in serious negotiations on the current year's NHS pay arrangement, members in England and Wales have threatened to go on strike on 6 and 7 February if progress is not achieved by the end of January.

Welsh government officials met with union representatives last week to talk about NHS pay, but they were unable to give a meaningful wage raise for the next fiscal year of 2022/23.

Even though we've had talks with the UK government, they still won't have the official negotiations that would end the nursing strikes.

Their disagreement concerns the funding of the National Health Service for the current fiscal year, and the relevant governments have so far missed opportunities to avoid a work stoppage.

On December 15 and 20, the Royal College of Nursing launched its initial waves of strikes in England, Northern Ireland, and Wales; this week, on January 18 and 19, they will launch another round of strikes in England.

There will be a historic level of intensity to the nurse strikes planned for February. Compared to 44 in December and 55 in January, a total of 73 English NHS trusts will host them. As in December, the strikes in Wales will target the National Health Service. Find a complete list of impacted companies here.

If the UK government doesn't start salary discussions in the next weeks, Northern Ireland may resort to fresh industrial action. Strike action has been suspended in Scotland as talks continue.


Workers have lost hundreds of pounds in yearly salary over the last year, according to TUC general secretary Paul Nowak. Conservative ministers, on the other hand, are dragging their feet on serious discussions in the public sector. To protect their salaries, workers have been forced to use their legal right to go on strike.

To paraphrase what Harvey stated, The freedom to strike will not be impeded by the Conservative government's hasty introduction of new rules to settle wage disputes. Conflicts are best resolved by discussion and compromise, preferably at a bargaining table where reasonable wage proposals may shield employees from price increases.

What kind of offer have railroad employees been given? An offer was made by the Rail Delivery Group (RDG), which represents rail firms, that would have given train drivers a 4% wage raise retroactive to 2022, in addition to a 4% raise this year.

The general secretary of Aslef, Mick Whelan, said that the idea was unacceptable but that the union was open to further conversations.

Furthermore, Network Train has offered a 5% raise in 2022 and a 4% raise in 2023 to other rail personnel.

However, the offer has been deemed “substandard” by RMT union head Mick Lynch, and the union's members have voted to reject it.

The RMT also turned down a proposal from the RDG that would have given them an 8% raise over two years and ensured there would be no layoffs until April 2024.

In return, it demanded that ticket offices be repurposed or closed, and that Sunday hours be eliminated.

In these hard times, we’ll point you towards a Dave Ramsey guide on how to create an emergency fund.

Related Articles

What's going on at Metro Bank?
What's going on at Metro Bank?
It launched in 2010 to much fanfare with vibrant bank branches and a “chief canine...
November 30, 2023
How The Latest UK Tax Cuts Impact You
How The Latest UK Tax Cuts Impact You
After weeks of speculation on what the UK chancellor Jeremy Hunt was going to announce...
November 27, 2023
UK bank closures: Who's shutting the most branches?
UK bank closures: Who's shutting the most branches?
Across the UK, once-bustling high streets are pockmarked with closed ba...
November 21, 2023
Is Crypto Dead? The Fallout from the Collapse of FTX
Is Crypto Dead? The Fallout from the Collapse of FTX
Crypto darling FTX has collapsed and enigmatic founder Sam Bankman-Fried is facing...
November 21, 2023

Mentioned Banks

About Union Bank Union Bank, or Union Bank of Nigeria, was founded in 1917 as Colonial Bank. Its name was changed to Barclays Bank Dominion, Colonial and Overseas in 1925 after...
Learn More