Workers at Asda and Marks & Spencer received good news last week after both retailers announced pay rises for front-line staff that would curb inflation.
Asda on Friday announced it would invest £150 million in higher wages, increase hourly wages by 8.4% (£13.21 in London and £13.21 per hour). 12.04 pounds outside M25.
A few days earlier, Marks and Spencer said it would increase its £40,000 hourly rate from £10.90 to £12 in April – a rise of 10 per cent. London staff will receive an hourly increase of more than £1 to £13.15.
What would be applauded in the aisles will be less well received on Threadneedle Street.
Bank of England officials are watching wage growth across the economy with concern. Officials have repeatedly said that continued strong wage growth has them considering cutting interest rates.
“This is a key risk and a key threat to the argument that interest rates will be cut in the second half of this year or maybe maybe even this summer,” says Paul Dales, chief UK economist at Capital Economics.
Private sector wages rose 6.2% in the final three months of the year, excluding bonuses, Office for National Statistics data shows.
Although supermarkets employ only one million of the UK's more than 30 million workers, this sector is experiencing one of the highest rates of wage growth in recent years.
Wages in the wholesale, retail and hospitality industries rose 7.2% in the latest quarter. in 2023, a full percentage point faster than the national average.
Clive Black of Shore Capital says: “Most of the big players are hiring store associates at around £12 an hour, which means that there will be further inflationary pressure in the food system.
“It’s not just supermarkets that are subject to this pressure, but also farms, food factories and distribution centers.”
Asda and Marks & Spencer is one of the latest grocers to raise wages to around £12 an hour. Industry bosses aren't confident this will signal the end of the industry's wage hike.
The incredible payouts have been going on for years: Sainsbury's has increased wages by 50% in the last five years alone. which is more than double the rate of inflation when housing costs over the same period are taken into account.
The implications extend beyond the supermarket sector. Gary King, managing director of recruitment company Evolve Hospitality, says: “Foodservice companies, restaurants, hotels have had to increase wages to keep up with retail, delivery and so on.”
“There has been very little hospitality during the pandemic , so people moved from this sector to other sectors. It was not easy to attract them back, so salaries increased.”
The struggle is easy to see on the staff appeal posters in almost every restaurant and pub.
Although King says the pace of wage increases has slowed somewhat, the need to compete for workers means they are still on the low side . quite high.
Industries are still adjusting after Brexit and are having to pay more to recruit staff for some roles in the UK.
Julie Mordue, a Greenbean recruiter who helps call centers find staff, says finding enough workers is a “struggle.”
“We compete with retail, hospitality, leisure and all the industries where there is transferable customer service and soft skills such as empathy and listening. So we're all fighting for the same talent.”
The growing effect of the minimum wage could trigger a new round of pay rises.
From April, the minimum wage will rise by almost a pound to £11.44 an hour for over-21s. A similar increase a year earlier means the minimum wage will rise by just over 20% in just two years.
< p>Neil Carberry, head of the Recruitment and Employment Confederation, says: “For supermarkets that traditionally didn't pay the national minimum wage, they paid 50p, £1, £1.50 on top of that, they are feeling the pressure to step up. ”
Companies must adjust the wages of all workers when raising the minimum wage.
Carberry says: “If you are a small hospitality firm and you pay your bar manager £1 or £1.50 an hour more than your bar staff, then obviously if your bar staff get a 10 per cent increase there will be pressure to provide the same increase and the difference is greater than that.”
Upward pressure on wages is creating difficulties for many businesses. According to him, this is a “real challenge.”
As a result, many companies with low-wage workers are forced to look for ways to recoup profits elsewhere, either by raising prices (another driver of inflation) or by cutting hours. In areas such as logistics, companies have begun to invest much more in automation to cope with the situation, but for many service providers this is not an option.
All this means that pressure to increase wages is wages affects not only wage growth, but also wage growth. Inflation in the broader services sector are two key indicators that concern Bank of England rate-makers.
This creates problems for the Bank of England, where policymakers are adamant they need to normalize wages before they can do so. start cutting interest rates from a 16-year high of 5.25%.
Traders are betting the Bank will cut borrowing costs for the first time in June, but Dales warns that could be optimistic.
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“If you look at payroll data for the wage increases that companies actually pay their existing employees, most are in the 5-6 percent range, which is still too high to meet the 2% inflation target.” says Dales. “They plan to continue to do this into next year.”
His concerns are echoed by Jack Kennedy, senior economist at recruiting platform Indeed, who calls expectations for a June rate cut “a little ambitious.”
< p>“These low-wage industries are still seeing pretty strong wage growth, still in the 7% to 10% range in many cases,” Kennedy says. “Job seeker interest remains significantly lower than before the pandemic.”
One of the Bank of England's most senior officials last week said more evidence was needed before the Monetary Policy Committee (MPC) will be able to think. on lower borrowing costs.
Dave Ramsden, a member of the MPC, said there were still signs of persistent inflation.
The Bank's chief economist Hugh Pill also expressed caution about an imminent rate cut. when he warned on Friday that politicians risked being “lulled into a false sense of security.”
That means joy over the pay rise may be short-lived. Those who would enjoy the wage increases may soon find themselves paying for them as borrowing rates remain high.
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