UK wage growth accelerates to historic high shows Indeed Wage Tracker

• Indeed research reveals annual growth in advertised wages accelerated to 7.2% in the UK in May.  
• In the broader euro area, wage growth has held steady through the year, though trends differ across countries.  
• Annual growth in advertised wages in the US wage growth was 5.3% in May, a continued slowdown from the highs recorded in early 2022.

Latest data from Indeed’s Wage Tracker shows that, with few exceptions, annual growth in advertised wages has largely flattened out or declined somewhat across the EU and US over the past year after peaking in 2022, but has continued to rise and hit new records in the UK in 2023. The pace of wage gains is a critical indicator followed closely by central banks the world over as policymakers continue to fight high inflation by focusing on dampening a global labour market that largely remains resilient and tight.

Wage growth picks up in the UK, holds steady in the euro area, and slows in the US

In the UK, year-on-year growth in advertised wages hit 7.2% in May 2023, the highest pace ever recorded in Indeed data dating to 2019. Since the start of the year, the pickup in UK wages was strongest in nursing and lower-paid occupations including retail, customer service, cleaning, and food preparation and service. These recent gains likely reflect newly agreed-upon pay deals for nurses as well as the 9.7% increase in the National Living Wage announced in April.

But at the same time as wage growth has been accelerating in the UK, it has held fairly steady on average across the six countries tracked by Indeed across the euro area. The employment-weighted average annual wage growth across these six countries clocked in at 4.7% in May, down slightly from a peak of 5.1% reached in October. By comparison, annual wage growth in the US fell to 5.3% in May and has been slowing gradually for more than a year since peaking at 9.3% in early 2022 (see our US analysis for more details).

Trends do diverge across countries within the EU, though with the exception of Italy, wage growth remains well above historic norms in most areas. Among EU countries tracked by Indeed, overall annual wage growth was highest in May in Germany, at 6.2% — down from a recent peak of 7.0% reached in October. Year-on-year growth in advertised wages in Spain and the Netherlands both accelerated to 5.0% in May, while Ireland and France held steady at 4.9% and 4.8%, respectively. In Italy, annual wage growth has slowed dramatically to just 1.6%, more in line with its low historical growth rates.

European Wage Growth Lags Headline Inflation

Despite historically high growth rates, posted wage growth in the UK and euro-area countries remains below the headline rate of inflation, though it has closely tracked core inflation, which excludes food and energy prices. However, there has been some convergence in recent months as inflation has started to fall.

Wage growth is supported by labour markets that remain tight despite falling vacancies

Despite a broadly uncertain economic growth outlook for the EU and UK, along with strong headwinds as a result of higher interest rates and tighter monetary policy from policymakers engaged in the inflation fight, unemployment rates remain at or near historic lows. While job vacancies have gradually fallen in most countries, they are still high relative to historical levels, leading to a fairly tight labour market overall as measured by the ratio of job vacancies to unemployment (which is still high). 

A high ratio of vacancies to unemployment—essentially, when there are more jobs available than workers to fill them—increases workers’ bargaining power, putting upward pressure on wages. We observe a strong positive correlation between this ratio and growth in advertised wages in most of the countries tracked by Indeed.

But through the first five months of 2023, the UK has been an exception to this pattern. The vacancies-to-unemployment ratio has fallen, but wage growth has accelerated. Likely drivers include recent public-sector pay deals, a substantial increase in the minimum wage, and worker demands for pay to catch up to persistently high inflation.