Cost of living crisis deepens as pay rises fall far behind inflation 

Soaring energy bills, higher food and fuel costs have sent the UK inflation rate to a 40 year high of 9.4% and as a result the average wage increase of 4.7% between April and June, was outpaced by prices growing at a much faster pace – writes Hannah Barnaby

 
According to the Office for National Statistics, the ‘real value’ of pay fell by 3% during the period, and the latest inflation figure, due out on Wednesday, is forecast to be even higher. 

The gap between pay growth and inflation is the biggest since records began more than 20 years ago; ONS’ Darren Morgan said the real value of pay was continuing to fall, saying: ‘Excluding bonuses, it is still dropping faster than at any time since comparable records began in 2001’. 

The data also highlighted a gap between public and private sector wage growth; private sector wages grew by 5.9% compared with pay growth of 1.8% in the public sector – ‘the largest difference we have seen for 20 years’ according to MR Morgan. 

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. 

Most pay rises announced last month for millions of public sector workers including teachers, nurses, doctors, police officers, and members of the armed forces, were below the current rate with ministers arguing large rises could cause inflation to remain higher for longer. 

The Bank of England recently tried to cool rising prices with the largest interest rate hike in 27 years to 1.75%; it also warned that the UK economy will fall into recession towards the end of this year as prices for gas and electricity continue to rise. 

Nye Cominetti, of 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’, he said. 

If price inflation slows down as is hoped, there may be better news for worker’s living standards next year, although the Bank of England fears that higher pay will itself become a cost fueling inflation pushing wage demands even higher; the much-dreaded ‘wage-price-spiral’ could mean it takes a lot longer to get inflation back to the 2% target. 

Commentators expect a further interest rate rise in September; possibly more than a quarter of a percentage point. 

Julie Marson, minister at the Department for Work and Pensions, said 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. 

But shadow, Jonathan Ashworth said the fall in real wages was: ‘further proof that the Tories have lost control of the economy’. 

‘Because of the Tories’ failure on the economy, families face plummeting real wages and soaring energy bills. Yet, this Zombie Government is offering no solutions to the cost of living crisis,’ he said. 

ONS figures also revealed that quarterly job vacancies in the quarter fell for the first time since 2020, dropping by 19,800 to 1.274 million, although Covid had a major impact in 2020. 

Unemployment held at 3.8%, while the employment rate for people aged 16 to 64 decreased slightly to 75.5%; the number of people classed as economic inactive, not in or seeking for work, was unchanged between April to June at 21.4%, with the majority being over-50s who have left work since the start of the Covid-19 outbreak. 

Neil Carberry, 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.