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Next year UK wages will be at their lowest level since 2006, report says



London
CNN

Britons hoping for a pay rise in the New Year to offset soaring food and energy costs may be disappointed.

The average British worker’s salary in 2023 is expected to fall back to 2006 levels once inflation is taken into account, according to PwC. Real wages, which take inflation into account, are expected to fall 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 hits double digits, triggering the worst cost of living crisis in decades. This led to widespread strikes across the British economy, encompassing the railways, schools, nurses, hospitals and postal service.

On Friday, passport officers began eight days of strikes set to hit some of the UK’s busiest airports over Christmas and New Year, including Heathrow and Gatwick in London. 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 has obviously been a very difficult year for the UK economy, and it’s no surprise that these cold headwinds will continue throughout 2023,” Barret Kupelian, senior economist at PwC, said in a statement.

The report offered some hope. Despite falling wages, more than 300,000 UK workers could re-enter the workforce in 2023, reducing economic inactivity and easing staff shortages in high-skilled 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 of the economy is contracting,” PwC said.

“Despite a shrinking 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 for 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 jobs recovery. Vacancies hit a record 1.3 million earlier in the year, falling to just under 1.2 million in November. Labor shortages have been particularly acute in the hospitality, retail and agricultural sectors.

A study by the House of Lords Economic Affairs Committee published this week concluded that early retirement has been the main driver of shrinking Britain’s workforce. The increase in long-term illnesses, the drop in migration to the EU after Brexit and the aging of the British population have also played a role.

“Rising inactivity poses serious challenges to the UK economy. The labor shortage exacerbates the current inflationary challenge; harms short-term growth; and reduces revenue available to fund public services, as demand for those services continues to grow,” the committee said.

PwC’s Kupelian added that UK inflation likely peaked in October and will “gradually start to return to target over the next couple of years.”

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