05 Oct Legal Sector Wage Inflation in the United Kingdom
The vaccine rollout and the easing of COVID-19 pandemic restrictions at the end of 2021 prompted increased business confidence and congruently increased the demand for staff within the UK legal sector. This pent-up demand for qualified candidates resulted in pay rises ranging from 10-15% – more than twice the rate of inflation at the beginning of 2022 – as the candidate shortage fostered competition between firms. The battle for talent in the legal sector has boded well for many NQs who have received record-high starting salaries. But for existing employees, the NQ wage inflation has resulted in their wage compression, as many existing and experienced employees make wages level with or below the NQ starting salary.
The Bank of England Increases Interest Rates
On 22 September 2022, the Bank of England Monetary Policy Committee voted to increase interest rates from 1.75% to 2.25%. This change came into effect on Monday of this week (3 October) for quarterly instalment payments and will come into effect on 11 October for non-quarterly. This increase is the Bank of England’s attempt to slow down inflation (which is currently 9.9%) by prompting firms to decrease investment and consumers to decrease spending. These actions, meant to inhibit economic growth, will result in less consumer spending and more saving, thus slowing the rate of inflation. The Bank of England’s goal is for inflation to fall to a targeted 2%. But with less demand and higher interest payments, the increase in interest rates will also have effects on wage inflation within the UK legal sector.
The Implications of Increased Interest on Wages in the UK Legal Sector
With the Bank of England increasing interest rates to 2.25%, the expected economic slowdown in the coming months will likely result in tapering legal wages. Rod Waldie, CEO of Gateley PLC, has publicly made statements predicting this decrease, as he believes the increased interest rates allow firms the opportunity to “readdress pay to align with market conditions.” This is good news for the overall legal sector, as this past year’s wage inflation of 10-15% significantly strained UK law firms’ financial resources. Ultimately, we can expect a decline in the legal sector’s wage inflation, as the inhibited demand and increased interest payment that both correspond with the BoE’s interest hike are likely to result in firms allocating less money to payroll expenditures.
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