Britons hoping for a pay rise in the New Year to offset rising food and energy costs may be disappointed.
Average pay for British workers in 2023 is expected to return to 2006 levels after inflation is taken into account, according to PwC. Real wages, which take inflation into account, are expected to fall by as much as 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 have stagnated in Britain even as inflation reaches double digits, sparking the worst cost of living crisis in decades. This has led to widespread strikes across the UK economy, including railways, schools, nurses, hospitals and the postal service.
Passport officers on Friday began eight days of strikes that are expected to affect 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 the Border Force, but warned travelers to expect delays and disruption upon arrival in Britain.
“2022 has obviously been a very challenging year for the UK economy, and it is not surprising that these cold headwinds will continue throughout 2023,” Barret Kupelian, senior economist at PwC, said in a statement
The report offered some hope. Despite the wage impact, more than 300,000 UK workers could re-enter the workforce by 2023, reducing economic inactivity and easing staff shortages in highly skilled sectors, according to PwC. At the same time, increased immigration to the UK could directly inject £19bn ($23bn) into the economy, boosting GDP growth by 1% “even as the whole economy contracts” , PwC said.
“Despite a contracting economy, the UK remains an attractive destination for workers,” PwC economist Jake Finney said in a statement. UK immigration levels hit a record 1.1 million in 2022, with resettlement schemes targeting Ukrainians, Afghans and Hong Kong residents adding around 140,000 to the total, according to PwC.
Even with record immigration, the UK has lagged behind developed countries in its post-Covid employment recovery. Vacancies hit a record high of 1.3 million earlier this year, falling to just under 1.2 million in November. Labor shortages have been particularly acute in the hospitality, retail and agriculture industries.
The House of Lords Economic Affairs Committee inquiry published this week concluded that early retirement has been the main driver of pressure on the UK workforce. The increase in long-term illnesses, lower migration to the EU after Brexit and the aging of the UK population have also played a role.
“Rising inactivity poses serious challenges to the UK economy. Labor shortages are compounding the current inflationary challenge; growing short-term damage; and reducing the income available to fund public services , while the demand for these services continues to grow”, said the commission.
PwC’s Kupelian added that UK inflation probably peaked in October and will “gradually start to return to target over the next two years”.