The heated wage war playing out between Britain’s discount supermarkets shows no signs of slowing down.
In the latest volley, Lidl has announced its third pay increase in the past 12 months, raising the hourly wage by another 3% in September under a broader £60 million remuneration investment.
The UK arm of the German budget supermarket has become one of Britain’s most generous major employers.
Alongside a string of pay hikes, new policies introduced in January effectively doubled paid maternity leave.
Fellow discounter Aldi announced its second pay hike for 2024 in March and in the same month, Asda announced an 8.4% wage increase for hourly staff.
It clearly remains an employee-side market in the supermarket sector, bolstered by a historically low unemployment rate, even if it did tick slightly higher than expected in the last quarter.
This is great news – wages should keep up with inflation after all – but Bank of England hawks could also weaponise these surging salaries at some of Britain’s biggest employers for their own agenda.
Why bother cutting?
Wage inflation is a closely watched statistic for policymakers and the BoE cited it as one of the core threats to persistent inflation in the wider economy.
It’s a double whammy- higher wages mean more spending, but it also raises the possibility of retailers passing through increased staffing costs to the consumer.
Nonetheless, the BoE is undoubtedly becoming more dovish, given that two Monetary Policy Committee (MPC) members voted for a rate cut on Thursday.
But there is still no clear consensus for when rates might start to come down and the more conservative members of the MPC will point at buoyant wages as proof that the UK economy is still running hot.
In fairness, they won some vindication with Friday’s gross domestic product print. The UK economy grew 0.2% year on year and 0.6% sequentially in the first quarter of 2024, officially putting recession fears to rest after slipping at the end of 2023.
Britain’s economy grew at its fastest rate for two years in the first three months, with the 0.6% quarter-on-quarter growth rate eclipsing market forecasts of 0.4%.
With the economy ticking along and employees seeing their take-home pay going up, why risk throwing a spanner in the works with a rate cut?
That is the question for the doves to answer.
Higher for longer?
“(BoE governor) Andrew Bailey painted a bucolic picture of a recovering economy which will be further boosted by any rate cut tailwinds. But the resilience being demonstrated by most sectors could be seen as a reason for MPC members to keep their finger on the pause button for a little while longer,” said Danni Hewson, head of financial analysis at AJ Bell, following the latest GDP print.
Hewson continued: “We’ve not yet seen the impact of the cut to National Insurance or the increase in the national minimum wage on consumer spending patterns and there have been plenty of businesses making it crystal clear that increased wage costs would have to be passed on.
“Those green shoots we’ve heard so much about since the start of the year have sprouted nicely, but it will only take one spring storm to damage the burgeoning flowers.”
‘Higher for longer’ could be the running theme after all. We’ll find out on 20 June, when the MPC makes its next move.