What do the latest data tell us about UK wage growth?

While wages are growing faster than expected, real take-home pay is falling across all UK regions and nations. In most parts of the country, median pay is growing faster than average (mean) pay, reflecting, in part, post-pandemic competition for lower paid roles.

The rate of wage growth in the UK has reached a record high. Basic pay is up 7.3% in the three months to May compared with a year ago, matching the record growth seen in April.

Wage growth is currently the most closely tracked indicator of the UK labour market. The main reason for this – as set out in a previous Economics Observatory article – is the implications of rising wages for the path of inflation and the likely response of the Bank of England in light of its 2% a year inflation target.

Headline pay data

Headline wage growth in the latest data continues to show that for both total pay (which includes bonus payments) and regular pay, the purchasing power of average weekly earnings has fallen over the past year (by 1.2% for total pay and 0.8% for regular pay). This has been true in both cases for over 12 months.

Figure 1: Inflation-adjusted growth in average weekly earnings

Source: Office for National Statistics (ONS), 2023

Sub-national pay data

While we do not have the data in Figure 1 broken down by the regions and nations of the UK, there is another, albeit ‘experimental’, data source produced by the ONS and HM Revenue and Customs (HMRC) that sheds some light on what has been happening to pay at a sub-national level.

These data are from the ‘pay as you earn’ (PAYE) real-time information dataset. In contrast to the data above, they are presented in ‘nominal’ or cash terms. Unfortunately, we do not have inflation data broken down across regions and nations to enable us to translate these data into real terms.

Given this, the best that we can do is compare wage growth across regions and nations in nominal terms and explore how it has evolved.

Figure 2: Annual growth rate of average pay by region and nation of the UK, 2020 onwards

Source: ONS, 2023

Since 2020, there is some variation in how average pay has grown, but the same broad trend is evident across regions.

But some interesting regional differences emerge when we look at data on the growth rate of median earnings from the same data source.

It is well known that the income distribution is skewed, with average (mean) pay exceeding median pay. (The former is total income divided by total employees – what everyone would earn if income was distributed equally; the latter is the level at which half of employees earn more and half earn less.) We can see this difference in average and median pay in all regions and nations (see Figure 3).

Figure 3: Median pay as a percentage of average pay

Source: ONS, 2023

Unsurprisingly, London has the starkest pay inequality with median pay around 60% of average pay, while the South East and the East of England also have shares below that of the UK as a whole.

But if we look at how these shares have changed over time (the data only begin in 2014), we can see that the ratio of average to median pay growth is getting worse in London, but not in the other regions and nations. Zooming in on the post-2020 period, we see that the same pattern is evident (see Figures 4 and 5).

Figure 4: Ratio of average to median pay, by region and nation of the UK

Source: ONS, 2023

Figure 5: Ratio of average to median pay, by region and nation of the UK, post-2020

Source: ONS, 2023

What do these data tell us?

First, it is likely that real take-home pay is falling across all UK regions and nations (although we cannot know this for certain as we don’t have regional inflation data).

Second, in most regions and nations, there has been faster growth in median pay over this period than there has been in average pay.

This reflects several factors including the current demand for workers and high numbers of unfilled vacancies at the lower end of the pay scale. The tightness of the labour market has led to firms increasing their wage offers for some lower-paid jobs and changes in the composition of the labour market and the nature of work available. London remains an outlier region, with average pay growing more than median pay.