Wages are rising rapidly – what does this mean?

Wages have risen by 7.8 per cent in the second quarter of the year, as Sean O’Grady explains why it’s happening and what the fallout will mean for Rishi Sunak

Supply and demand is driving higher wages (PA)

The headline news is that average – there are plenty of variations – pay rose by 7.8 per cent in the second quarter of the year, as compared with the same period last year. This is very high by recent historical standards, and the fastest rate of increase since similar records began in 2001. Pay rates going up at near double figures is something many presumed had been left in the distant past.

The figures suggest that the labour market remains very tight, which has good and bad economic and political consequences for the government. The monthly annual inflation figure is published imminently and will give a further indication about the state of the economy. All those readings will be critical in the Bank of England’s next interest rate decision, due next month.

Why are wages rising so rapidly?