UK labour costs accelerate at fastest rate since 2010

THE HOURLY cost of employing British workers jumped by 4.9 per cent in the first quarter, compared to the last three months of 2012, the fastest rise since 2010.

The figures, announced yesterday, showed that despite a two per cent rise over the course of the year, pay is still rising below inflation.

Wages rose by 1.6 per cent between the first quarter of last year and the first of this year, with the rest of the rise made up by a 4.3 per cent increase in non-wage labour costs: a measure which covers sickness, maternity and paternity pay, as well as the employer’s national insurance and pension contributions.

Eurozone figures for labour costs, which were also released yesterday, demonstrated a similar overall rise as wages and salaries ticked upward by 1.7 per cent.

However, some countries in the euro area outperformed the average. German wages grew by 3.5 per cent, along with lower inflation.

Despite positive wage growth in the UK, Britons are still feeling the pinch as above-target inflation outstrips increases in pay. The consumer price index for the year to April stood at 2.4 per cent; meaning prices are rising faster than incomes.

Howard Archer, chief European economist at IHS Global Insight remained sceptical of above-inflation wage growth for the euro area generally. “The widespread weakness of Eurozone wage growth is severely limiting consumers’ purchasing power”, adding, “at least the squeeze on purchasing power has been alleviated by Eurozone consumer price inflation being limited to 1.4 per cent in May”.

There were significant variations by sector in cost of labour to UK firms. Parts of the manufacturing sector saw some of the biggest increases, with a nine per cent rise the cost to British textile producers.