UK Salary Growth

What is driving UK Salary Growth?

The subject of UK salary growth is obviously a focal point of discussion in recruitment for employees, employers and policymakers alike. ‘What is driving UK salary growth?’ is a question we’re often asked, so we’ve taken the time to offer an answer in our latest blog.  

Over the past few years, the landscape of wages in the UK has been varied and somewhat turbulent. To fully appreciate the current trend of growing salaries, it’s essential to understand the historical journey of pay scales in the UK, at least relatively recently.  

The reasons behind UK Salary Growth

In the early 2000s, the country saw moderate but steady wage growth, which reflected a generally-stable economic climate but the 2008 financial crisis marked a significant turning point. The economic downturn which followed led to a period of wage stagnation and decline in real terms, as businesses grappled with the challenges of a contracting economy. 

As a result, the post-recession years were characterised by a slow recovery in wages. While the UK economy gradually regained its footing, salary growth remained modest, often struggling to keep pace with inflation. This period highlighted the complex interplay between economic growth, inflation and wage rates. 

Entering the 2020s, the UK, along with the rest of the world, faced an unprecedented challenge with the COVID-19 pandemic. This brought drastic shifts in the job market, with certain sectors experiencing severe disruptions, while others, particularly in digital and technology domains, saw a surge in demand. 

As we emerged from the pandemic, the turbulence in the UK job market continued and we began to witness a significant shift. The combination of a recovering economy, changes in labour supply due to Brexit and a re-evaluation of work-life priorities by many employees led to an environment where salary growth has become a prominent feature. 

The recent trend of rising salaries in the UK can be seen as a response to a unique combination of economic, social and political factors. As the economy rebounded from a series of global and domestic challenges, the job market has adapted. But what does this mean for the future and what is currently driving UK salaries to new heights? 

What is driving UK Salary Growth?

Government Policies Spark Change 

In April 2023, the UK government raised the National Living Wage by 9.7%, significantly impacting pay scales across various age and employment categories. This move was aimed at enhancing living standards but it’s not without its complexities, especially given the mixed reactions from different industries​​. 

Inflation: The Double-Edged Sword 

The UK’s rising inflation, peaking at 10.1% in early 2023, has been a key driver in salary increases. While businesses strive to align salaries with inflation rates it remains a challenging task, especially considering the cost-of-living crisis​​. 

The Economy’s Pulse: GDP and Unemployment 

Economic indicators like GDP growth and unemployment rates have a significant impact on salary trends. A booming GDP often leads to higher wages because low unemployment creates a competitive job market where businesses offer higher wages to attract workers. Conversely, high unemployment can lead to stagnant or decreasing wages​​. 

Technological Advancements 

In some industries, automation and streamlining can decrease the demand for labour, potentially affecting average wages. At the same time, new roles created by technological advancements can drive demand for different skillsets and higher wages in those areas​​. 

A Glimpse into Salary Figures 

As per the Office for National Statistics, the annual growth in regular pay (excluding bonuses) was 7.8% in June to August 2023, one of the highest since records began. The finance and business services sector saw the largest growth. 

Sector-Specific Trends 

The industry landscape is diverse, with sectors like manufacturing witnessing significant pay growth. Factors like technological advancements and skill shortages play a crucial role in shaping salary structures within industries​​. 

Navigating the future of UK Salary Growth with expertise and insight

The trends we’ve seen in recent years – from government policy shifts to economic fluctuations – paint a picture of an evolving job market. With the interplay of factors like inflation, GDP growth and sector-specific developments, salaries are likely to continue their growth, although perhaps not at levels seen earlier this year. 

That’s why it’s important to recognise the trends that impact salary growth. As specialists in the FMCG job market, we know the trends that impact bottom lines and our deep understanding of the FMCG sector allows us to provide tailored advice in people and salary planning. By aligning the expectations of both employers and candidates, we ensure the talent we place is not only exceptional but also fairly compensated in line with market trends and individual capabilities. 

Looking ahead, the trajectory of UK salary growth will undoubtedly continue to be influenced by a variety of factors, both predictable and unforeseen. While uncertainties remain, one thing is clear – with the right expertise and approach, businesses and professionals can successfully navigate these challenges. At Signature, we’re ready to offer that expert guidance to help our clients thrive in the dynamic world of FMCG. 

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