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Wages and the UK economy

Agenda magazine Agenda magazine

Rob Turner, director in our insight and analytics practice, explores what wages say about the state of the UK economy in an unclear, often contradictory climate.

The UK economy is currently experiencing an extended period of slow growth (GDP grew 0.2% in Q4 2018). This, together with the potential implications of Brexit, makes it difficult for business leaders to fully grasp the current state of the UK economy and what it might mean for their organisation.

Headline UK GDP growth rate (%)


One area where the evidence is pretty clear, which potentially provides a valuable gauge into the state of the economy, is what’s happening to wages. Pay is of particular interest to businesses, as it not only directly affects the bottom line, but can also have significant implications for employee motivation, morale and productivity. At the end of 2018 the headline figure for wage growth stood at 3.5%, the highest it has been for a decade.

As is often the case with economic data, how you interpret the detail depends on whether you are a pessimist or an optimist. For optimists, 3.5% growth saw median weekly pay rise from £550 to £569, which means £19 more in people’s pockets every week.

And for workers in the West Midlands the growth rate was as high as 4.2%. But pessimists would counter by saying that, when adjusted for inflation, growth drops to only 1.2% higher than 2017.

Median full-time weekly earnings

Average weekly earnings (£) adjusted seasonally, and for inflation


While individuals may be better off, it is such a small difference that any positive feeling is likely to be offset by high levels of debt, with each UK household on average spending or investing around £900 more than they received in income, according to the Office for National Statistics.

This wage growth is primarily a reflection of greater competition for workers. With unemployment at historic lows throughout 2018, businesses have had to respond and pay more to retain employees and attract new recruits. This coupled with more subdued inflation has resulted in the growth of real earnings.


People power: fuelling your growth through talent and skills uncovers how high-growth business are securing and developing future talent. 

Number of job vacancies in the UK (thousands), seasonally adjusted


This has been a relatively slow adjustment. For several years inflation has increased at a rate that removed any growth. A longer-term view shows that earnings adjusted for inflation in 2018 were at a similar level to 2011 and remain 3.7% lower than they were in 2008, before the financial crisis. This feeling of being squeezed has characterised the last decade. It is a perception that will directly shape salary expectations and demands and, in turn, morale and motivation where such expectations are unable to be met.

UK unemployment rates (% of all economically active)


Getting the balance right between pay levels and investing in the right people is a challenge for businesses. Recruitment and people management involve significant financial costs as well as huge opportunity costs, as they draw time and energy away from the day-to-day running of the business. It is a challenge that will be compounded by the perception – if not yet the reality – that Brexit will see increasing competition for workers, as European workers leave the UK.

How businesses attract, develop and retain talent is therefore going to be a major issue for all business leaders as we head further into 2019.

For more on our insight and analytics services or to get in touch contact Rob Turner.


Office for National Statistics datasets:

Figure 1 GDP monthly estimate

Figure 2 Annual survey of hours and earnings

Figure 3 Annual survey of hours and earnings

Figure 4 Vacancy survey

Figure 5 Labour force summary

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