Pay growth in UK picks up pace but people in work still feeling poorer

Taking inflation into account, pay actually fell by more than three and a half percent in the last three months of last year. Joel Hills has the latest

To mangle Macmillan, most people in Britain have had it this bad before but, goodness, the squeeze on household incomes we are currently experiencing is brutal.

“Real” (adjusted for inflation) pay began falling in November 2021 and has continued falling ever since. 

According to data released this morning by the Office for National Statistics (ONS), pay in December fell by 2.5% in real terms.

We have been here before.

Prices rose faster than pay for almost five years after the recession of 2008/2009.

And there was a brief squeeze on real pay when the pound devalued after the UK voted to leave the European Union in 2016.

Annual growth in average weekly earnings, adjusted for CPIH inflation. Credit: Resolution Foundation

But the current falling in incomes is the sharpest we’ve seen for decades and it isn’t over yet.

On current trends, the typical worker won’t start feeling better off until the autumn.In the circumstances, it’s little surprise that industrial action is becoming more frequent.

The number of days lost to strikes doubled between November and December to 861,000. 

It’s hardly “Back To The Seventies” (a record 11.7 million days were lost to strikes in September 1979) but expect this number to rise again next month.

Economics Editor Joel Hills on what the latest figures mean for the pound in our pocket

The government argues that increasing pay awards for nurses, teachers and civil servants would push up prices in the shops for everyone else. 

The unions - and many economists - contest the extent to which this is true. Either way, the result is deadlock.

Pay in the private sector (7.3%) is rising faster than in the public sector (4.2%) but the gap has narrowed.

Across the economy, annual pay growth (6.7%) isn’t rising fast enough to prevent people feeling worse off (the annual rate of inflation is 10.5%) but has enough momentum to concern the Bank of England.

In a tight labour market - where there are almost as many people looking for work as there are job vacancies - the Bank fears companies are hiking pay to attract and retain staff and funding these increases by raising their prices.

In as much as this is happening, the risk is another wave of inflation.

There are some signs of cooling down. Unemployment has risen slightly, vacancy levels remain historically high but have eased down again for a seventh month in a row.

People also returned to the workforce in large numbers in the last three months of last year.

There are still more than 300,000 fewer economically active people in the UK than there were three years ago but if these trends persist the Bank might feel it doesn’t need to raise interest rates much further to contain inflation.

“In tough times, unemployment remaining close to record lows is an encouraging sign of resilience in our labour market,” said the chancellor, Jeremy Hunt, this morning.

Quite so. For an economy which is barely growing and which many economists still expect to end up in recession at some point this year, it’s striking how few people are being made redundant.

“In work but feeling poorer” is the lived experience of so many people currently. 

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