Why Britain is leaving Europe behind on pay – and becoming more like the US

Figures from Indeed, the recruiter, show advertised salaries are accelerating in the UK even as they slowed in the eurozone.

Real wages have risen by more in 12 months than they did in the previous 16 years, according to the Resolution Foundation. Regular wages are 2.4pc higher than they were a year ago after accounting for inflation.

The recent move by Goldman Sachs to scrap the cap on bankers’ bonuses in the UK – and the expectation that rivals will follow – suggest rewards may keep getting richer.

Strong pay growth in part reflects Britain’s newly resurgent economy. Growth topped the G7 in the first quarter of the year, well outpacing the US.

However, the country still has a lot of catching up to do: average real pay is still 2.4pc below where it was three years ago, with workers suffering long-lasting scars from the cost of living crisis.

British workers also still earn far less than their US counterparts. The typical American earned $77,500 (£61,570) in 2022, according to the OECD, compared to $54,000 for the average British worker. In Germany, the figure is $58,900, while France is a touch lower at $52,800.

However, strong wage growth is not necessarily good news. The Bank of England fears high pay rises risk fuelling inflation. Huw Pill, the Bank’s chief economist, has suggested that interest rates may have to stay higher for longer.

Britain’s economy is therefore potentially closer to America than Europe – but for the wrong reasons. While the European Central Bank is near to cutting rates, the Federal Reserve is struggling to make sure inflation has been fully conquered in the face of strong economic growth.

Why then is Britain confronting this cocktail of strong pay growth and potentially persistent inflation while it eases in the EU?