Inflation drives fastest fall in real pay on recordon August 16, 2022 at 8:31 am

Pay has fallen further behind the rising cost of living, according the latest official data.

While average wages by rose by 4.7% between April and June, that was outpaced by inflation – or price rises – which rose nearly twice as quickly.

As a result, the “real value” of pay fell by 3%, according to the Office for National Statistics.

Household budgets are being hit by soaring energy bills as well as higher food and fuel costs.

The rise in prices has fuelled the UK inflation rate to a 40-year high and it is expected to rise further. The gap between pay growth and inflation is the biggest since records began more than 20 years ago.

Darren Morgan, director of economic statistics at the ONS said the “real value” of pay was continuing to fall. “Excluding bonuses, it is still dropping faster than at any time since comparable records began in 2001,” he said.

The data also highlighted 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 Mr Morgan said is the “largest difference we have seen for 20 years”.

The rising cost of living has prompted calls from workers and unions for pay rises, with some sectors, such as the rail industry, taking strike action in recent weeks.

Last month, the government announced pay rises for millions of public sector workers including teachers, nurses, doctors, police officers, and members of the armed forces.

However, most wage increases awarded were below the current rate of inflation of 9.4%, with ministers arguing large rises would fuel more price rises even further.

Nye Cominetti, a senior economist at the Resolution Foundation, said Britain was witnessing the biggest pay squeeze since the Queen’s Silver Jubilee in 1977.

“The scale of this pay pain is even deeper than official figures suggest too, as pay growth estimates are still artificially boosted by the effects of the furlough scheme last year,” she said.

It says something about the extremity of inflation that the average pay rise is still not enough to keep up with price rises.

The key now will be what happens to inflation next year. If price inflation slows down as hoped, then pay rises may once more outstrip price rises. That’s better for workers’ living standards.

But the Bank of England will be worried that it means higher pay will itself become a cost fuelling inflation and that pay will have to rise by even more to make up for that – the much-dreaded ‘wage-price-spiral’ so that inflation takes a lot longer to get back to the 2% target.

Expect an interest rate rise in September, and it might be more than a quarter of a percentage point.

Julie Marson, minister at the Department for Work and Pensions, said the government recognised people were “struggling with rising prices”.

“Being in stable employment is one of the best ways for people to get on, but we’re also providing £1,200 direct payments for millions of low income households as part of our £37bn package of support to help with the cost of living,” she said.

Separately, the ONS also revealed that quarterly job vacancies fell for the first time since 2020. Between May and July, they dropped by 19,800 to 1.274 million. Though the ONS points out that since vacancies fell to an all-time low between April to June 2020 in the beginning months of the Covid pandemic, they have increased by 945,000.

Neil Carberry, chief executive of the Recruitment & Employment Confederation, said the “overall picture” in the jobs market was ” still positive for those looking for work or to change jobs to raise their pay”.

But he said firms were still struggling with staff shortages, which he claimed would “constrain growth and drive inflation”.

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