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Average pay up 6% in a year but is crushed by inflation

Paloma Kubiak
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Paloma Kubiak

Workers saw an average 6% growth in monthly pay over the year to October 2022, but with inflation at eye-watering levels, wages have actually fallen in real terms.

Growth in average total pay which includes bonuses was 6%, while regular pay which excludes bonuses was 5.7% between July and September 2022.

According to the latest estimates from the Office for National Statistics (ONS), growth in average pay was highest in the finance and insurance sector (10%), and lowest in the accommodation and food service sector (0.6%).

Split between the private and public sector, average pay growth for the private sector was 6.6% in the three months to September 2022, and 2.2% for the public sector.

The ONS, said: “Outside of the height of the pandemic period, this is the largest growth seen for the private sector and the largest difference between the private sector and public sector.”

Despite regular pay seeing the strongest growth outside of the Covid pandemic period, once inflation is factored in, workers have seen wages fall in real terms.

The ONS revealed that total pay fell 2.6% while regular pay fell 2.7%. This is slightly smaller than the record fall in real regular pay seen between April to June 2022, “but still remains among the largest falls in growth since comparable records began in 2001”, it noted.

‘Hard work is paying less every month’

Danni Hewson, financial analyst at AJ Bell, said: “Wages are rising and the three months to September delivered the ‘strongest growth in regular pay’ since the pandemic. But 5.7% doesn’t cut it in today’s uber inflationary environment and real pay fell by 2.7%. Hard work is paying less every month and life is becoming just that little bit harder.

“The yawning chasm between what the private sector is able to cough up and what the public sector is offering in terms of pay rises is of real concern to both the government and society as a whole. Doing a job because you love it is all well and good but if you’re having to tell your kids they can’t switch the heating on, there will be plenty of workers wondering if their skills could be better rewarded elsewhere.”

Alice Haine, personal finance analyst at DIY investment platform and coaching service, Bestinvest, added: “With spending power now severely compromised, workers have the added worry of what Thursday’s Budget will deliver with Jeremy Hunt widely expected to freeze a raft of tax allowances and thresholds as he looks to plug a black hole in the public finances – moves that could see more people pulled into the tax net or higher tax bands as a result.

“With inflation expected to peak around the 11% mark in the fourth quarter, wages are set to get stretched even further.”

Fall in unemployment

The ONS figures also revealed that in the three months to September, there was a fall in the unemployment rate compared with the previous quarter. The UK unemployment rate was estimated at 3.6% which is 0.2 percentage points lower, and 0.4% percentage points below pre-pandemic levels. The ONS noted the decrease in the unemployment rate was largely driven by men.

Meanwhile, estimates for October indicated there were 29.8 million payrolled employees, a rise of 2.7% compared with the same period in the previous year. It takes the employment rate to 75.5%, 1.1 percentage points lower than before the pandemic. This is a rise of 772,000 people over the 12 months.

Elsewhere, the UK economic inactivity rate was estimated at 21.6%, which is 0.2 percentage points higher than the previous three months period.

‘Easing of labour demand’

Ashley Webb, UK economist at Capital Economics, said: “September’s labour market figures reveal further signs that the labour market is becoming less tight. That may alleviate some of the pressure on the Bank of England to repeat November’s 75 basis point increase at the next policy meeting on 15 December.

“The 52,000 fall in employment in the three months to September was much larger than the analyst consensus of -25,000, due to a single-month fall of 249,000 in September, and is another sign of easing of labour demand.

“And despite a further 108,000 rise in inactivity, the unemployment rate rose from 3.5% in August to 3.6% in September. While the number of single-month job vacancies rose by 57,000 in October, the three-month average continues to trend downwards. So on both of these measures, the labour market is not quite as tight as it was a few months ago.”

Webb added that given today’s data, it thinks the Bank of England will raise interest rates by 50 basis points in December (to 3.5%), and will eventually peak at 5%.