UK workers are still being squeezed by a historic inflation crunch despite wage increases smashing expectations, official figures out today reveal.
The average pay increase including bonuses hit 5.9 per cent over the three months to February, up from the previous period and above the City’s expectations of a 5.1 per cent increase, according to the Office for National Statistics (ONS).
Regular pay growth, which strips out one pay off payments, jumped to 6.6 per cent over the same period from 6.5 per cent, also topping forecasts.
However, despite the overshoots, inflation, which has raced to a 40 year high, is still eroding workers’ living standards.
The ONS said real wages – which measures cash pay growth minus the rate of price increases – fell on both measures, at minus three per cent and 2.3 per cent respectively.
Today’s numbers illustrate how sharply the inflation surge is knocking Brits’ spending power. Pay growth has for several months run at historically high levels, but price increases have eroded any gains workers have received over that period.
Latest figures show inflation unexpectedly jumped to 10.4 per cent in February and new figures covering March are tipped to show it fell to 9.8 per cent.
Jeremy Hunt, the Chancellor, said today that “rising prices continue to eat into pay cheques which is why halving inflation this year is one of our top economic priorities.”
He and Prime Minister Rishi Sunak have promised to slash the rate of price increases this year, alongside several other pledges. The Bank of England had forecast inflation would halve last November.
Analysts said historically high pay growth has been driven by workers demanding pay increases from their employers to shield their living standards.
“Pay growth picked up again to rates not previously seen outside of the pandemic. This reflects general inflation spilling into pay demands as employees seek to mitigate the cost of living squeeze,” Yael Selfin, chief economist at KPMG UK, said.
Unemployment over the three months to February ticked up 0.1 percentage points to 3.8 per cent, still historically low levels, the ONS said.
Economic inactivity – which measures the proportion of people in Britain not in a job or looking for one – slumped 0.4 percentage points to 21.1 per cent.
Numbers from the Organisation for Economic Co-operation and Development last week revealed the UK has suffered the biggest outflow of workers from the jobs market since the start of the pandemic in the G7.
Vacancies fell in response to slow down in the demand in the UK economy, the ONS added.