Pay Rise in the UK 2023

As of April 2023, the UK government has increased the National Living Wage by 9.7%, from £9.50 per hour to £10.42.  The National Living Wage applies to employees aged 23 and over and who are not currently in the first year of an approved apprenticeship, and means a full-time employee could be around £1,600 better off over the course of the year.  The minimum wage bandings, for those under 23, have also increased depending on the age and status of the employee;

  • For those aged 21-22, the minimum wage has increased from £9.18 to £10.18 per hour
  • For those aged 18 – 20, the minimum wage has increased from £6.83 to £7.49 per hour
  • For under 18’s, apprentices under 19 and all apprentices in the first year of their apprenticeship regardless of age, the minimum wage has increased from £4.81 to £5.28

This news has been met with mixed reactions, with some industries holding strikes over pay and working conditions, as well as the cost-of-living crisis and rising inflation, there remains a strive to balance the needs of the business with the needs of the individual.

Managing expectations around salary increases will be vital for employers who cannot all match a 9.7% increase across their workforce.  Understanding what the average increase is geographically and by industry becomes more relevant to ensure organisations are able to increase salaries fairly, without the risk of losing valued employees simply over money.

In this article, we investigate the factors that will affect the average UK pay rise, looking at what differs between industries as well as overall trends to demonstrate how organisations across the UK are handling pay rises in 2023.

What affects the average pay rise in the UK in 2023?

There are several different factors in play that will all affect the average pay rise in the UK.

Economic factors that affect the average UK pay rise

One of the main factors that affect the average UK pay rise is to do with the economy. The economic state of the UK will have a huge impact on the value of wages for the following reasons:

Inflation rates

Currently in the UK, inflation rates have been rising. This has led to the cost-of-living crisis, with the same goods and services costing more than they did just two or three years ago. This may have effectively resulted in a pay cut for people if their salaries have not kept up with the standard rate of inflation.  For some businesses however, matching salaries with inflation rates – which for the 12 months to March 2023, sits at 10.1%, down from a peak in October 2022 of 11.1% – is simply not a sustainable option.    

Gross Domestic Product

Another economic factor that will affect the average UK pay rise is the Gross Domestic Product, or GDP, of the country. When GDP is growing, it indicates that the economy is expanding, and this can create a demand for labour, which may lead to increased wages and salaries for workers.

Population growth can also play a part in how GDP affects the average pay in the UK. If the population grows at the same rate as the GDP, it will likely be that wages will stay the same, with no growth. This is because the GDP per capita will remain the same.

Unemployment rates

The rate of unemployment can also affect the average UK pay rise. When unemployment is low, businesses will have to compete to entice workers. As a result, they could offer higher wages, which could impact the average national wage overall.

However, if unemployment is high, it is the employees that compete for the jobs. As the demand for labour will be lower, businesses will have less need to offer salaries higher than the national average. This could see average wages stagnating or even decreasing.

Industry factors that affect the average UK pay rise

It is not just the national economic situation that can affect the average UK pay rise. There will be a myriad of industry-specific factors that can also affect wages.

For example, when a sector is performing well, with a high demand for its goods or services, it would usually follow that wages would also increase. Similarly, when an industry is booming but there is a shortage of skills and qualifications, this would also likely see an increase in the average pay. Businesses should be prepared to pay higher wages in order to secure qualified and experienced workers.

In recent years, many industries have seen huge technological developments, resulting in jobs being automated and streamlined to need fewer people involved. For these industries, the average wage could begin to decrease, as the demand for labour also decreases. However, with these types of advancements, new roles may be needed. As such, these sectors could see growth and demand for different skillsets and knowledge.

How does the average UK pay rise differ by industry?

Recent research shows that the manufacturing industry has seen the biggest year-on-year increase in weekly earnings. This sector has grown 5.9%, higher than the whole economy average of 5.7%. The private sector is on par with manufacturing, also seeing a 5.9% average growth in 2023.

Retail, hospitality, and wholesale have seen moderate growth, at 5.1%. The public sector is also falling behind, only seeing an average growth of 4.8%.

The industries that have seen the least growth are construction and finance and business services, with an average growth of 4.6% and 4.5% respectively.

If your company needs HR support, Vero HR can help. We can provide you with dedicated HR services to effectively manage your workforce and can also consult on pay increases and payrollContact us to find out how we can help your business.

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