The real value of UK workers’ pay continued to fall at the fastest rate for 20 years in June as wage increases were outstripped by soaring inflation amid the cost of living crisis.
The Office for National Statistics said annual growth in average pay, excluding bonuses, strengthened to 4.7% in the three months to June against a backdrop of low unemployment and high job vacancies.
However, the real value of workers’ pay packets dropped by 3% – the fastest decline since comparable records began in 2001 – after taking account of its preferred measure of inflation.
Growth in average earnings including bonuses was 5.1%, although also failed to keep pace with the soaring cost of living.
The latest snapshot showed early signs of a slowdown in hiring demand among employers despite job vacancies remaining close to a record high. The ONS said unemployment rose slightly to 3.8% in the three months to June, while the number of new job openings fell for the first time since summer 2020.
Growth in employment slowed to 160,000 in the three months to June, well below analysts’ forecasts, suggesting the jobs market is beginning to cool as Britain’s economic performance falters.
Ruth Gregory, a senior UK economist at the consultancy Capital Economics, said: “June’s labour market figures revealed further evidence that the weaker economy is leading to a slightly less tight labour market.”
The chancellor, Nadhim Zahawi, said the latest figures showed Britain’s jobs market was in a strong position, with unemployment lower than at almost any point in the past 40 years. “[That is] good news in what I know are difficult times for people,” he said.
“Although there are no easy solutions to the cost of living pressures people are facing, we are providing help where we can. We are delivering a £37bn package of help for households through cash grants and tax cuts so people can keep more of what they earn.”
However, the figures underlining the unprecedented hit for workers’ pay are likely to add to the pressure on the government and Conservative leadership candidates amid the cost of living crisis.
Labour said the figures showed the Tories had lost control of the economy. Jonathan Ashworth, the shadow work and pensions secretary, said: “This zombie government is offering no solutions to the cost of living crisis.”
Inflation as measured by the consumer price index reached 9.4% in July, the highest rate for 40 years. With a fresh increase in energy bills expected this autumn, the Bank of England forecasts inflation to peak above 13%, alongside a long recession as households rein in their spending.
Frances O’Grady, the general secretary of the Trades Union Congress, said the figures showed urgent government action was required to support households ahead of a difficult winter. “They should cancel the increase to the energy price cap. And they must do far more to get pay rising – starting with boosting the minimum wage this autumn and giving public sector workers a decent pay rise.”
The pay data revealed a widening gulf between public and private sector workers, with pay in the private sector rising by 5.9% over the past year, more than three times the 1.8% growth rate in the public sector.
According to analysis by the accountancy firm PricewaterhouseCoopers, the pay of the richest 1% of workers rose by almost four times the rate of the poorest 10th, highlighting how some households are more insulated from the cost of living crisis than others.
The Resolution Foundation said the scale of the pay squeeze was deeper than official figures suggest, with the real value of average weekly wages falling by the most since the Queen’s silver jubilee in 1977.
Nye Cominetti, a senior economist at the thinktank, said: “This squeeze has come about despite robust pay growth and a lively jobs market, with pay settlements strengthening slightly, and almost a million people moving jobs in the last three months.”