UK wages have recently grown at a pace not seen for over a decade. But rather than a sign of nascent inflationary pressure, changes in the makeup of jobs have exaggerated headline pay, and comparisons with a depressed 2020 will compound this over the next few months. ▪ Lower‐paid staff have been more likely to lose their jobs during the pandemic, cutting the weight of these jobs in the average pay calculation. And as people on furlough return to work, y/y earnings growth is likely to hit a record high. ▪ These effects will fade, particularly if new jobs are richer in lower‐paid roles. Thereafter, the post‐Covid world presents upside and downside risks to pay growth. On balance, a return to the pre‐pandemic norm of 2.5%–3% y/y is likely.
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