UK wages next year will be the lowest since 2006, the report says

London
CNN
—

Britons hoping for a New Year pay rise to cover rising food and energy costs may be disappointed.

According to PwC, the average British worker’s pay in 2023 is expected to fall to 2006 levels when inflation is taken into account. Real wages that take inflation into account are expected to fall by 3% in 2022 and another 2% in 2023, PwC predicted in a report on the UK economy shared with CNN.

The report confirms that wages in Britain have stagnated despite inflation hitting double digits, fueling the worst cost-of-living crisis in decades. This led to widespread strikes across the British economy, including railways, schools, nurses, hospitals and the postal service.

On Friday, passport officers began eight days of strikes to hit some of the UK’s busiest airports over Christmas and New Year, including London’s Heathrow and Gatwick. The government said in a statement that the military would support border forces, but warned travelers to expect delays and disruption when arriving in Britain.

“2022 is clearly a very difficult year for the UK economy and it is not surprising that this cold head will continue into 2023,” Barrett Kubelian, senior economist at PwC, said in a statement.

The report offered some hope. Despite lower wages, more than 300,000 UK workers could re-enter the workforce by 2023, reducing economic inactivity and reducing workforce shortages in high-skill sectors, according to PwC. At the same time, increased immigration to the UK could directly contribute £19 billion ($23 billion) to the economy, boosting GDP growth by 1%, “even if the whole economy contracts,” PwC said.

“Despite a shrinking economy, the UK remains an attractive destination for workers,” PwC economist Jack Finney said in a statement. UK immigration levels are set to reach 1.1 million in 2022, with resettlement schemes for Ukrainians, Afghans and Hong Kong residents adding around 140,000 to the total, according to PwC.

Even with registered immigration, the UK lags behind developed countries in post-Covid jobs recovery. Vacancies fell below 1.2 million in November, down from 1.3 million at the start of the year. Labor shortages are particularly acute in the hospitality, retail and agricultural sectors.

A House of Lords Economic Affairs Committee study published this week concluded that early retirement is a key driver of Britain’s workforce reduction. A rise in chronic illnesses, a drop in migration to the EU after Brexit and the aging of the British population also play a role.

“Rising unemployment poses serious challenges for the UK economy. Labor shortages are exacerbating the current inflation challenge; undermining short-term growth; and reducing the revenue available to fund public services, as demand for those services continues to rise,” the group said.

PwC’s Kubelian added that UK inflation is likely to peak in October and “start to gradually reach the target over the next two years”.