Soaring pay in the UK fans fears of higher interest rates and a possible recession
[LONDON] Two reports released in the UK this month showed that while wage growth is on the rise, there are fears that higher pay could push up prices across different sectors of the economy.
The consumer price index in Britain fell to 6.8 per cent in July. This continues a downward trend, after it reached a 41-year high of 11.1 per cent last October. Still, the latest rate is higher than in most other major economies.
The UK’s Office of National Statistics said in its latest report that wage growth in the UK had reached the strongest pace in history.
Excluding bonuses, the average earnings went up 7.8 per cent in the three months to June compared with a year ago, the highest average annual increase since comparable records began in 2001. But when inflation is taken into account, the actual rises were just 0.6 per cent.
At the highest end of the pay scale, a separate report by the London-based High Pay Centre think tank found that the chiefs of some of Britain’s top companies earned an average of nearly £4 million (S$6.84 million) last year.
The report revealed that the median chief executive of the Financial Times Stock Exchange (FTSE) 100 companies was paid a whopping 118 times what the median full-time worker in the UK earned. This is up from 108 times in 2021 and 79 times in 2020.
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The High Pay Centre – an independent, non-partisan body that focuses on the causes and consequences of economic inequality – said the CEO annual pay went up by 16 per cent from £3.38 million in 2021 to £3.91 million last year.
Among the biggest earners in the CEO group are Pascal Soriot of pharmaceutical company AstraZeneca, who earned £16.9 million; Charles Woodburn of security and armaments company BAE Systems, who made £10.7 million; Albert Manifold of building supplies company CRH, who took home £10.4 million; and Bernard Looney of oil giant BP, who pocketed £10 million.
The median salary of a CEO at an FTSE 250 company, meanwhile, was £1.77 million in 2022, a shade higher than the £1.72 million the year before.
The High Pay Centre wrote in its report: “At a time when so many households are struggling with living costs, it is not desirable or sensible for Britain’s biggest employers to prioritise £500,000 pay rises for executives who are already multi-millionaires.”
The higher salaries across the wage spectrum have fanned concerns that inflationary pressures could exacerbate a downturn in the British economy, with economists warning that the nation faces a real risk of entering a recession in the next six to 12 months.
The Bank of England (BOE) has already said that persistent pressures could see the central bank raise interest rates again. On Aug 3, the base rate went up by a quarter of a percentage point to 5.25 per cent. The BOE’s next interest rate decision will be on Sep 21.
There have been several signs of weakness in the UK economy in recent months. The sterling slipped to US$1.263 against the greenback on Friday (Aug 25), down from the July peak of US$1.315.
The UK’s purchasing managers’ index (PMI) – conducted by S&P Global and the Chartered Institute of Procurement and Supply – fell from 50.8 in July to 47.9 in August, a 31-month low. A reading of under 50 points indicates a slide in manufacturing and services business.
“Companies are reporting reduced orders for goods and services due to the cost-of-living crisis, higher interest rates, export losses and concerns about the economic outlook,” said Chris Williamson, chief business economist at S&P Global.
He added that the rise in salaries and wages over the past year had raised companies’ cost pressures, although he feels that wage inflation was beginning to abate.
The Confederation of British Industry (CBI) said that a survey of UK retailers had reported a plunge in sales in August. The decline was the worst since March 2021, a time when Britain was still deep in a Covid-19 lockdown.
The number of businesses that reported falling sales was 44 per cent higher than those that managed a turnover improvement.
“It’s a summer that many retailers would rather forget,” said Martin Sartorius, a CBI economist. “Retailers foresee cuts to investments over the next year and employment is expected to fall.”
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