Real wages in June fall at fastest rate in 20 years

The real value of UK workers’ pay continued to fall at the fastest rate for 20 years in June, shows official data published today (16), as wage increases were outstripped by soaring inflation amid the cost of living crisis.

According to the figures, annual growth in average pay, excluding bonuses, strengthened to 4.7 percent 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 percent – 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 percent, although also failed to keep pace with the soaring cost of living.

The country’s labour market is showing signs of cooling in, as businesses became more cautious about hiring and workers suffered a record fall in their basic wages when adjusted for soaring inflation.

The unemployment rate of 3.8 percent in the three months to June was unchanged from last month’s report, close to a half-century low despite Bank of England warnings that the economy is likely to slip into recession later this year.

The number of people in work grew by 160,000 in the April-June period compared with the quarter before, but this was a lot less than expected in a Reuters poll of economists, which had pointed to an increase of 256,000.

The Band of England expects the jobless rate will only start to rise from mid-2023 before increasing to 6.3 percent in three years’ time.

The central bank raised borrowing costs by the most since 1995 earlier this month and said it remained ready to act forcefully if that pressure became more persistent.

“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,” Nye Cominetti, a senior economist at the Resolution Foundation think tank, said.

Figures due to published on Wednesday are expected to show consumer prices rose by 9.8 percent in the 12 months to July, according to economists polled by Reuters, and the BoE expects it to hit 13.3 percent in October, its highest since 1980.