Britain’s pay squeeze deepened at the start of the year as wages fell in real terms at the sharpest rate for more than seven years, official figures show.
Average earnings – stripping out bonuses – climbed by 3.8% in the three months to January, according to the Office for National Statistics (ONS), up from 3.7% the month before.
But the increases are not keeping up with inflation – now at a three-decade high and expected to intensify as energy bills rise in the spring and the Ukraine war adds to pressure on global commodity prices.
That meant wages fell by 1% in real terms – the steepest decline since July 2014.
Image: Vacancies hit a new record highThe picture was a little less gloomy when measuring wages including bonuses, which were up by 4.8%, though that still represented only a 0.1% real terms increase.
AdvertisementMeanwhile, Britain’s unemployment rate was a little lower than expected at 3.9%, down from 4.1% in the three months to December, as the number of jobless people fell to 1.34 million – lower than pre-pandemic levels for the first time.
The ONS findings also underlined the recruitment struggles facing many employers, with the number of vacancies in the three months to February hitting a new record of just over 1.3 million.
More on Cost Of Living Related Topics: Cost of livingInflationWagesThe figures are the last set of job and wage data before the spring statement next week, which is expected to see Chancellor Rishi Sunak unveil the latest economic forecasts.
Mr Sunak has been warned that without spending billions more, Britain will face a household income squeeze that could be the worst since the 1970s.
Responding to the latest figures, the chancellor said: “Thanks to the unprecedented economic support we’ve provided, we’ve now seen a year of falling unemployment and a stronger jobs market bounce back than so many predicted.
“I am confident that our labour market is in a good position to deal with the current global challenges, with payrolled employee numbers above pre-pandemic levels in every nation and region and redundancies at record lows.”
4:45 How Russia affects our energy billsBritons face ‘horrible battle to make ends meet’
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “Bumper bonuses are skewing pay figures, so on initial glance everything in the jobs market looks rosy.
“However, something far more worrying is lurking underneath the headline figures, because once you take inflation into account, pay excluding bonuses has fallen faster than at any time for almost eight years.
“Unless you’re one of the lucky few taking home a bumper bonus this winter, you’re in for a horrible battle to make ends meet this spring.”
The figures come two days before the Bank of England’s latest interest rate decision, when it is expected to hike the Bank rate again, from 0.5% to 0.75%, as it seeks to address the threat of inflation.
Officials want to prevent the energy price spike behind the inflation surge from turning into a spiral in which workers ask for higher wages to match inflation, in turn creating higher prices again as employers pass on the costs.
Martin Beck, senior economic advisor to the EY ITEM Club, said the latest figures showing lower unemployment and soaring vacancies were “warning signs” of a tight labour market that could add to such risks.
Paul Dales, chief UK economist at Capital Economics, said: “The further fall in the unemployment rate to within a whisker of the pre-pandemic rate will only encourage the Bank of England to raise interest rates on Thursday.”