Amid a multitude of inflationary pressures, wage increases are emerging as a particularly significant one.

The governor of the Bank of England, Andrew Bailey, was derided and not unfairly accused of hypocrisy when he preached wage restraint in February. The latest figures from KPMG and REC (Recruitment and Employment Confederation) on the UK jobs market demonstrate why he felt moved to make the comments.

Hiring activity may have slowed in March but that’s not due to a lack of trying on the part of companies with overall vacancies increasing for the fourteenth consecutive month and at their fastest rate in six months.

Inflation in starting salaries hit the highest level since records began in October 1997. As has been the case in each of the prior four months, the IT and computing sector recorded the steepest increase in demand for permanent staff of all 10 sectors monitored by the survey. The softest, but still sharp, rise in permanent vacancies was seen in retail.

The fact this is very much a live issue in the retail sector was demonstrated by Tesco’s (TSCO) announcement of the biggest rise in base pay for a decade and the decision by its peer Sainsbury’s (SBRY) to sign up to the Real Living Wage, set by campaign organisation The Living Wage Foundation.

Separately, BT (BT.A) is facing a possible strike after its largest union, the Communication Workers Union, rejected a pay rise of £1,500 for frontline workers.

A STRONG NEGOTIATING POSITION

Employees are in a strong position with many employers struggling to fill positions and the push for higher pay is understandable as people face up to cost-of-living pressures.

However, the danger is these pressures become even more acute as companies respond to higher wage costs, and other pressures in areas like energy and raw materials, by putting up prices for their goods and services.

Despite the surge in wages, PwC forecasts there could be a fall in real wages of 2% in 2022 as inflation runs ahead of wage growth with the average UK household £900 worse off this year.

Investors will need to keep a close eye on updates from consumer-facing firms, which could see demand hit by the pressure on household budgets, and businesses which are large employers which could see profitability suffer thanks to upward pressure on staff pay.

This issue is not limited to the UK. US-based Walmart (WMT:NYSE) has recently announced its truckers will be paid up to $110,000 in their first year working for the company as a part of a new recruitment drive. 

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