Uk salary increases are near record levels, experts: it threatens to trigger a spiral inflation effect

According to market research firm XpertHR, the compensation awards uk employees received in January were the highest since late 2008. According to the data of the job search website Indeed, in the past year, the salary of the job advertisements it released has increased by more than 6%, and the salary increase in hotels, construction, logistics and other fields is more prominent.

A survey released by the British Recruitment and Employment Union (REC) and accounting firm KPMG also showed that the starting salary of long-term employees in the country climbed rapidly in January, the third highest in history, after October and November last year.

Some British media said that the current phenomenon in the United Kingdom is reminiscent of the 1970s, when the inflation rate and wage level in many European countries not only increased together, but also rose wage levels as one of the important drivers of high inflation, forming a "wage-price spiral" rising phenomenon.

Ding Chun, director of the European Studies Center of Fudan University and vice president of the Chinese European Society, said in an interview with the first financial reporter that the wages of British employees continue to grow, because the new crown pneumonia epidemic coupled with Brexit has made the phenomenon of short supply in the country's labor market increasingly prominent. Coupled with the current high cost of living of the British people, the people of the country have a greater demand for salary increases. Rising wages could affect the country's inflation trajectory, which would put the country's economic policymakers in a "dilemma."

Cost of living pressures drive up the demand for salary increases

Neil Carberry, chief executive of REC, said the British people were experiencing an unprecedented "cost of living crisis", which made the demand for salary increases for job seekers more urgent.

The country's Consumer Price Index (CPI) rose 5.4 percent year-on-year in December, the highest in nearly 30 years, according to the latest data from the Uk's Office for National Statistics (ONS). Among them, energy and food prices are important drivers, which have threatened the purchasing power level of the British people.

In its report "Energy Prices and Their Impact on Households", ONS said that the current wholesale price of natural gas in the UK is nearly 4 times that of the same period last year, and the price of electricity is 8 times that of the same period last year. As a result, each UK household will pay at least £600 more per year for this.

In terms of food, bread, cereals, meat, vegetables and potatoes are the segments with the highest price increases. The British charity Food Foundation recently said that about 4.7 million adults in the country experienced a "food crisis" in January, accounting for nearly 8.8% of the country's total population, due to a sharp increase in food prices.

Wages in britain have risen, but they have not outperformed inflation. Adjusted for inflation, the country's actual per capita income fell by nearly 1 percent year-on-year in November, according to ONS data. It is also important to note that since 2008, real wages in the UK have hardly increased. Affected by high oil prices and The exchange rate of Brexit, British workers have been forced to accept lower living standards for nearly a decade.

Cabery further said that due to the current tight uk labour market, in the context of rising prices, employees have more capital to negotiate with companies to raise wages.

According to REC, the current employee demand index for UK businesses is 68.6, well above the long-term average. In January, the demand for employees increased in all departments surveyed, with significant expansion in the medical care, restaurant and hospitality, and technology industries. ONS said the number of job vacancies in the UK reached an all-time high of 1.25 million in the fourth quarter of last year.

According to British media reports, after seeing the salary increase of truck drivers with similar skills, truck drivers and bus drivers in the UNITED also demanded a big salary increase. Meanwhile, ground crews and refueling crews at London's Heathrow Airport are preparing for strike action in February.

The "wage-price spiral" reappears?

Ding Chun believes that due to the impact of Brexit and the new crown epidemic some time ago, the gap between supply and demand was obvious, resulting in an increase in the price of commodities such as energy and food, forming a high demand-driven inflation, and at the same time promoting the rise in the cost of living of the people. At present, the demand for Brexit and the intensification of the new crown in the labour market is greater than supply, and the rising cost of living has caused upward pressure on the wages of British employees, which may promote cost-driven inflation. Demand-driven and cost-driven inflation overlap, triggering a spiral inflation effect.

Many companies are also alerting them to the risks of high inflation. John Allan, chief executive of Tesco, britain's largest supermarket with nearly three-tenths of the UK's retail market, said food inflation in the UK could continue before the spring and could reach new highs. The British Chamber of Commerce (BCC) said in a report that about 63% of companies are under pressure to raise prices due to increased wage spending.

Bank of England Governor Andrew Bailey called for businesses and workers to exercise restraint in negotiating wages to prevent runaway inflation.

Catherine Mann, a member of the Bank of England's Monetary Policy Committee, has bluntly stated that unless wage growth is controlled, it is impossible for the UK to control inflation. "I know there's been a lot of talk about the cost of living crunch, and my goal is to get inflation back to target levels so workers can reap the benefits of their labor." She said.

In Ding Chun's view, Uk economic policymakers, including the Bank of England, are facing a dilemma: if the Bank of England does not adopt a policy of raising interest rates, demand-driven and cost-driven British inflation will further rise as energy, food and wage prices continue to rise. However, if the Bank of England exerts too much force, it will hit the British economic recovery, and the country's economy is in danger of entering a state of "stagflation".

Oxford Economics said in a report to the first financial reporter that in the current economic environment, the UK's monetary policy committee has become more hawkish. After a series of rate hikes in December and February last year, the Bank of England is expected to raise rates by another 25 basis points in March and May. However, given that real incomes of UK households are suffering a major shock, it is not known whether the Bank of England will adopt a tighter monetary policy to curb demand.