Average wages in the UK are falling at the fastest rate for more than two decades as annual pay growth fails to keep pace with the rising cost of living despite record numbers of job vacancies and low unemployment.
The Office for National Statistics said annual growth in regular pay, excluding bonuses, fell by 4.5% in April after adjusting for inflation – the biggest fall since comparable records began in 2001.
Average total pay, including bonuses, fell by 3.7% on the month after taking account of inflation as measured by the consumer price index, in a more modest decline thanks to a boom in payouts in the finance sector.
British households are facing an intense squeeze on living standards as earnings growth fails to keep pace with soaring energy bills and the rising cost of a weekly shop, with inflation at the highest rate since the early 1980s.
“This is really grim news on pay and is only likely to get worse,” said Tony Wilson, the director of the Institute for Employment Studies. “Despite the tightest labour market on record, nominal pay is broadly flat meaning that rocketing inflation is leading to the largest cuts in real pay in at least two decades.”
However, workers in some sectors, mainly in private sector jobs in finance, IT and business services, are benefiting from stronger pay growth amid the lowest rates of unemployment for 50 years and record job vacancies.
The ONS said a sharp rise in City bonuses helped growth in average total pay – including bonuses across the economy – to reach 6.8% in the three months to April before inflation is taken into account. Average regular pay, excluding bonus payments, rose at 4.2% before inflation.
However, wage growth is failing to match soaring inflation fuelled by global supply chain blockages and Russia’s war in Ukraine driving up already high wholesale energy prices.
Highlighting the uneven impact of the cost of living crisis, amid the threat of strike action on the railways and other industries amid bitter pay disputes, average pay in the public sector rose by just 1.5%, compared with 8% in the private sector.
Analysts said tight conditions in the labour market were helping to lift pay growth before inflation is taken into account, with the latest figures revealing a fresh rise in the number of vacancies across the economy to a new record high of 1.3m.
Unemployment rose slightly month on month to 3.8% from 3.7% in March, although remained at among the lowest levels since the 1970s. The employment rate rose to 75.6% but still remains below pre-Covid levels because of a decline in self-employment. Figures from HMRC showed the number of employees on company payrolls rose by 90,000 in May to a record high 29.6m.
Rishi Sunak said the figures showed the jobs market remained robust with redundancies at an all time low. “Helping people into work is the best way to support families in the long term, and we are continuing to support people into new and better jobs,” he added.
Boris Johnson has argued that workers pushing for higher pay to compensate for soaring inflation could trigger a 1970s-style “wage-price spiral” that could force the Bank of England to raise interest rates further.
Economists said there were signs the jobs market was beginning to cool, with a rise in short-term unemployment for the first time since 2020, while there were few signs of a wage-price spiral taking hold.
Greg Thwaites, the research director at the Resolution Foundation, said: “On the one hand, vacancies are at a record high. On the other, unemployment has started to tick up. If this continues, families may start to find it harder to work more if they’re feeling poorer, but the Bank of England may feel more confident that it can avoid domestic inflation pressures spiralling.”