UK Employees and Pensioners Celebrate as Pay Rises Faster than Inflation
In welcome news for UK workers, average total pay, including bonuses, increased by 8.5% in the three months leading up to July, outpacing inflation. This is particularly good news for pensioners, as the government’s “triple-lock” policy means that pensions will also increase by the same proportion in April 2024. The Institute for Fiscal Studies predicts that the average state pension will rise from £156.2 to £169.5 per week.
However, the celebratory atmosphere may be dampened for Bank of England Governor Andrew Bailey and finance minister Jeremy Hunt. To cover the cost of the more expensive pensions, Hunt will have to allocate an additional £2 billion in both 2024 and 2025. This comes at a time when he is already struggling to find funds for tax cuts ahead of the upcoming election, scheduled for January 2025. Meanwhile, for the Bank of England, the rise in unemployment to 4.3% from 4.2% in the previous quarter suggests that their efforts to raise interest rates are starting to take effect. However, this is unlikely to deter Bailey from proceeding with another rate hike next week, especially with inflation currently at 6.8%, more than three times higher than the target of 2%.
The news of rising pay is a positive development for employees and pensioners across the UK. However, the financial implications for the government and the Bank of England cannot be overlooked. As the government grapples with the challenge of funding increased pensions, it may have to make difficult choices regarding tax cuts and spending in the lead-up to the next election. Meanwhile, the Bank of England will need to carefully consider its next steps in managing interest rates, balancing the need to combat inflation with the potential impact on the economy.
The increase in average pay offers a glimmer of hope for those who have seen their wages stagnate in recent years. With the cost of living rising, the boost in income will provide some relief for individuals and families. However, it remains to be seen how sustainable this trend will be and whether it will translate into long-term improvements in living standards. As the UK continues to navigate through economic challenges, including inflationary pressures and the aftermath of the COVID-19 pandemic, it is crucial for policymakers to strike a delicate balance between supporting workers and ensuring financial stability.
More detail via Reuters here… ( Image via Reuters )