Average earnings in the UK have grown at 7.2% over the 12 months to April, excluding bonuses, while the unemployment rate fell to 3.8%, new figures published by the Office for National Statistics (ONS) have revealed.

A boost in wages risks “adding to inflationary fires”, however, according to Hargreaves Lansdown.

For pay that includes bonuses, the rate of growth was 6.5% in the same period, which compared February to April with the same months in 2022.

However, the ONS figures have shown that the rates of growth in both total and regular pay have fallen in real terms, adjusted for inflation, on the year in February to April 2023 – by 2.0% for total pay and 1.3% for regular pay.

For the same period, the UK unemployment rate was estimated at 3.8%, a level 0.1 percentage points higher than the previous quarter but 0.2 percentage points below pre-pandemic levels.

Reacting to the figures, head of money and markets at Hargreaves Lansdown, Susannah Streeter, warned that the boost in wages risks “adding to inflationary fires” while it also “shores up expectations” that the Bank of England (BoE) will have to keep raising interest rates.

“Higher than expected wage growth will help households struggling with the cost of living crisis but the latest labour market trends risk adding fuel to inflationary fires and are set to make the BoE more determined to raise interest rates to put out the flames,” said Streeter.

“The increases to minimum wage levels, up almost 10% partly account for the rise, and while hugely welcome for those on low incomes, it comes at a hugely tricky time when policymakers want to see spending power reduced, not bolstered, to help bring down the rate of price increases.”

Senior economist at think tank the Resolution Foundation, Hannah Slaughter, also warned that the latest figures could worry anyone looking to remortgage.

She added: “Record pay growth across Britain means our 18-month run of falling real wages may have ended. But while this is welcome news for workers, it will worry the Bank, and by extension anyone looking to remortgage, as it adds to the case for raising interest rates for longer.

“The UK’s jobs market is also recovering – with employment and total hours worked finally back above pre-pandemic levels. But with the number of people too ill to work reaching a record high of 2.55 million, policymakers still face a huge task in helping more people back into employment.”

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