Brexit has boosted wage growth in the UK just as the Leave campaign predicted, economists have said.
Senior City analysts said near record-wage growth was partly being driven by a crackdown on uncontrolled immigration from the EU, with employers forced to pay higher wages for low-skilled roles previously filled by Europeans.
Marion Amiot, a senior European economist at rating agency S&P, said: “It’s much harder to get people from Europe so UK based-employees have better bargaining power and it means they can get higher wages.”
Ms Amiot said the UK labour market was undergoing a structural change that was forcing up wages.
Mabrouk Chetouane, the head of global market strategy at French investment bank Natixis, said the change in the labour market was “obvious” but said Brexit appeared to have become “taboo” when talking about it.
He said: “We have decent labour demand but when you look at the supply, it has been cut massively due to Brexit. It creates an imbalance that continues to fuel wage growth and this situation is here to stay.”
The comments come after figures last week showed that wages, excluding bonuses, were growing at a near-record pace of 7.7pc This is just 0.1 percentage point lower than the peak seen over summer, which was the highest since comparable data began in 2001.
Leave campaigners repeatedly argued during the referendum campaign that quitting the EU would drive up pay in Britain.
A letter signed by Michael Gove, Boris Johnson and Gisela Stuart in May 2016 said: “Wages will be higher for working people outside the EU… because pay will no longer be undercut by uncontrolled migration.”
Ms Amiot said: “It is true at the end of the day. Obviously, we have seen immigration is still quite high on a net basis but it’s not the same immigrants, so the skill set they bring is a bit different from before.”
Net migration reached a record high of 606,000 in the year to June 2022. However, many of these arrivals were either higher-skilled workers coming to fill hard-to-recruit roles or people arriving for humanitarian reasons from Ukraine, Hong Kong or fleeing persecution from elsewhere.
Jack Kennedy, a senior economist at hiring website Indeed, said he believed Brexit was “certainly likely to be a contributory factor” towards faster than expected wage growth for lower-skilled jobs.
Mr Kennedy said: “Our own Indeed wage tracker data shows that a lot of the categories where wage growth remains highest are the ones where we know Brexit has been an aggravating factor in terms of being able to fill staffing gaps.
“A lot of the lower paid sectors are seeing pretty strong rates of wage growth of between 7pc and 10pc in our data.”
Economists emphasised that Brexit is one of several factors contributing to surprisingly strong wage growth in the UK.
Other factors driving up wage growth include a wave of early retirement post-Covid and an increasein long-term sickness post-pandemic, both of which have contributed to a shortage of workers.
Ms Amiot said: “Wage growth is much stronger than what usual drivers would tell us. So this suggests the labour market is tighter than we think because the labour supply dynamics have changed.”
The Bank of England may have failed to predict just how rapidly wages would rise in response to high inflation because it underestimated the impact of Brexit, she added.
Governor Andrew Bailey said at a conference earlier this month that leaving the EU had “led to a reduction in the openness of the UK economy, though over time new trading relationships around the world should, and I expect will, be established.”
He added: “As a public official, I take no position on Brexit per se. That was a decision for the people of the UK.”
The Bank has alluded to the impact of Brexit on the jobs market in recent reports, stating that the economy’s ability to match workers with jobs appeared to have weakened in recent years.
As a result, policymakers believe unemployment needs to be higher than it otherwise would need to be to avoid stoking inflation.
Soaring wages have been a key factor in inflation rising faster and remaining higher for longer in the UK than in similar economies.
