Despite robust pay growth and a buoyant jobs market in the UK, the Office for National Statistics (ONS) reports that the real value of workers’ pay dropped by 3% in the three months to June, after taking inflation into account – the fastest decline since comparable records began in 2001.
While there is a growing number of people in work and redundancies remain at very low levels, growth in average earnings including bonuses was 5.1%, which sounds relatively healthy, but has in fact failed to keep pace with the climbing, record-breaking cost of living. Here, Clayton & Brewill explains what this fall in real pay means.
Rising rate of inflation
The rate of inflation has been on the rise for much of the last 12 months; as the economy opened up last year following the pandemic, people have been able to spend their money again. Demand for certain goods and services subsequently increased, putting mounting pressure on businesses and supply chains.
Many people have also decided to move jobs following the pandemic. These shifts in the labour market have also played a part in higher wages, and increasing costs for businesses, which inevitably get passed on to the consumer.
Furthermore, in recent months, the war in Ukraine and subsequent sanctions on Russia have led to more pressure on fuel and food prices.
These factors combined have contributed to the rising rate of inflation, which has now hit a 40-year high of 10.1%, the highest since February 1982. The rocketing fuel, food and energy prices have left millions of households across the UK struggling to pay bills, and with further rises in household utility bills, this situation is set to only get worse.
Impact on pay
The ONS data shows an annual growth in average pay, excluding bonuses, of 4.7% during April, May and June. However, when taking inflation and the cost of living into account, the real value of workers’ pay packets fell by 3% during these three months.
The ONS data also highlights a gap between public and private sector wage growth. Private sector wages grew by 5.9% while those working in the public sector saw pay growth of 1.8% – which Darren Morgan, director of economic statistics at the ONS, has described as “the largest difference we have seen for 20 years.”
Looking to the future
The Bank of England forecasts that the rate of inflation will keep rising this year, potentially up to 13% in October. But it is expected to slow down next year and be close to the targeted 2% in around two years time.
If price inflation slows down as hoped, then pay rises may once more outstrip price rises, which will be much better for workers’ living standards.
Get in touch
If you’re worried about the rising rate of inflation and the effect it may have on your business or employees, please talk to us.
