Why are wages rising and what does it mean for the economy?

Average pay was 7.3% higher in the three months to May compared with the same period last year

More expensive food and higher energy bills have forced workers to push for more money (Getty)

Wages across the UK have risen at record levels as inflation remains stubbornly high, according to new figures.

Higher pay will provide a welcome boost for many households who have come under pressure from more expensive energy and food bills over the past year.

But some economists have cautioned that high wage inflation could cause problems for the economy in the longer-term.

What is happening to wages?

Average regular pay, not including bonuses, was 7.3 per cent higher in the three months to May compared with the same period last year, Office for National Statistics (ONS) figures reveal.

The figures confirm there has been a steady acceleration in wage growth in recent months.

Why are wages rising?

Wages are largely increasing in response to recent rises in the cost of living, which saw overall Consumer Prices Index (CPI) inflation peak at 11.1 per cent growth last year, and was last reported at 8.7 per cent for May.

As a result of more expensive food and energy bills, many Britons have sought pay increases from employers to support their living costs.

Many firms who have seen revenues increase through higher pricing have also been able to pass these rises on to their workers proportionately.

Figures for the three months to May and those for the three months to April also partly hit record growth year-on-year as they included the latest jump in the minimum wage.

This increased by 9.7 per cent to £10.42 per hour for workers aged 23 and over from the start of April.

Are people better off?

The increase in pay comes during a backdrop of much higher, broader inflation, which was last reported at 8.7 per cent.

It means that the average worker saw real regular pay – the change in pay once inflation is taken into account – fall by 0.8 per cent for the three months to May.

This means the average worker was theoretically poorer than a year earlier due to the impact of inflation.

But the ONS said this was the smallest decline in pay in real terms since the end of 2021.

What do record wage rises mean for the economy?

The rate of wage inflation was ahead of the expectations of economists and resulted in some worries from experts on Tuesday.

The high level of wage inflation could result in continued high levels of broader inflation and in continued higher spending power from British households.

There are concerns that increased spending could mean that inflation does not fall away as quickly as predicted, with businesses not having to reduce prices in order to drive sales demand.

High labour costs in the supply chain or workforce could also provide another reason for firms to continue to pass price rises on to customers.

The Bank of England has hiked interest rates over the past 13 consecutive meetings in an effort to help inflation cool, and therefore continued wage growth could force the central bank to continue with further hikes.

Have all workers seen similar increases?

Although average regular pay grew by 7.3 per cent for the three months to May, the ONS also revealed that total pay – which includes bonuses – grew by 6.9 per cent for the same period.

The fresh data also showed a rosier picture for those working in the private sector, as they saw a 7.7 per cent increase.

Meanwhile, public sector pay was up 5.8 per cent for the period. This was however the largest annual public sector increase since 2001.

Workers in the finance and business services industry saw the largest increase at 9 per cent, followed by those working in the manufacturing sector, who saw a 7.8 per cent rise.