UK workers are still seeing pay rises that outpace the Bank of England's comfort zone, according to fresh data from pay specialist Incomes Data Research (IDR). The median pay award held at 3.5% for the three months to May, marking the fifth consecutive survey period at that level.
The figure, based on 247 pay settlements covering nearly 3.9 million employees—mostly at large employers—shows that wage growth is not cooling as quickly as policymakers had hoped. The Bank of England watches these numbers closely for signs that inflation pressures are fading, and today's data suggests they are not.
Why pay deals are stuck
IDR pointed to April's 4.1% increase in the National Living Wage, which rose to £12.71 an hour, as a key factor keeping settlements elevated. That boost has had an outsized effect in lower-paid sectors such as care, hospitality, and retail, where minimum pay levels quickly feed through to overall wage bills.
Even outside those sectors, employers are facing pressure to keep pace with the cost of living. While headline inflation has fallen from its double-digit peaks, many households still feel the pinch from higher prices for essentials like food, energy, and rent. That dynamic is pushing workers to demand more, and companies to offer more to retain staff in a still-tight labour market.
The persistence of 3.5% median awards suggests that the so-called 'wage-price spiral'—where higher pay leads to higher prices, which in turn lead to higher pay demands—has not fully unwound. For the Bank of England, that is a red flag.
What it means for investors
For everyday investors, the message is mixed. On one hand, steady wage growth supports consumer spending, which is good for companies that rely on domestic demand. On the other hand, it complicates the Bank of England's ability to cut interest rates anytime soon.
Higher wage pressures tend to keep inflation stickier, which means the central bank may need to hold borrowing costs higher for longer. That can weigh on stock valuations, especially for growth-oriented companies, and keep bond yields elevated. Investors in UK-focused funds or sectors like retail and hospitality should watch for any signs that wage costs are squeezing profit margins.
The IDR data also comes against a backdrop of broader global inflation uncertainty. In the US, consumer inflation expectations ticked up again in June, according to the New York Fed, a reminder that the inflation fight is far from over. Meanwhile, the Canadian dollar remains under pressure as mixed inflation data and interest rate differentials weigh on the currency.
For UK investors, the key takeaway is that the Bank of England is unlikely to rush into rate cuts while wage growth stays this sticky. That means mortgage rates and borrowing costs for businesses will remain elevated, potentially slowing economic activity further.
What to watch next
Investors should keep an eye on upcoming official wage data from the Office for National Statistics, as well as the Bank of England's own surveys on pay expectations. Any sign that the 3.5% level is breaking—either higher or lower—could move markets.
Also worth monitoring is how companies in labour-intensive sectors manage rising costs. Some may pass them on to consumers through higher prices, while others may absorb them and see margins shrink. The next round of corporate earnings reports will offer clues.
For now, the message from the IDR survey is clear: UK pay deals are stuck, and the Bank of England's inflation headache is not going away.
