UK households already feeling the pinch from pay stagnation and spiralling living costs are in for some more bad news. The Office of National Statistics (ONS) has announced that wage growth tumbled further than expected, to 1.7%.
According to the ONS’s figures, which looked at the three months up to April, that’s the second drop we’ve seen in as many months, and the fastest fall in almost three years. To put that figure into real terms, it means that our pay is now worth 0.6% less than it was. Or, we’re 0.6% poorer than in March.
Further compounding the issue is the fact that inflation is now at a four-year high of 2.9%. And because of that, everything from our bills to our groceries are costing more than we’re earning, which makes us feel poorer than we are. The news comes despite the fact that the country is at full employment – hailed by David Gauke, Work and Pensions Secretary, as ‘another strong set of record-breaking figures.’ The ONS noted that the unemployment is at its lowest rate in 42 years, with just 1.53 million find themselves unemployed.
Matt Hughes, a senior statistician at the Office of National Statistics, commented on the news, saying:
‘Many labour market indicators remain strong, with the employment rate at a joint record high and the inactivity rate at a joint record low since comparable records began in 1971. On the other hand, with wage growth continuing to slow and inflation still rising real pay is down on the year.’
In a strictly mathematical sense, then, it’s a case of good news (fewer people out of work) and bad news (we’re earning less). Indeed, the last time we saw wage growth fall was in the aftermath of the global financial crisis; however, at that time, unemployment was also down – so, technically, we’re still in a better position than before, even if our stagnating wages means it may not feel like it.
Stephen Clarke, an economics analyst at the Resolution Foundation, summed it up:
‘The sharp contrast between our terrible record on pay and strong jobs performance shows that the currency-driven inflation we are experiencing is not feeding through into wage pressures and is simply making us all poorer instead.’
Perhaps more worrying is the knock-on effect that these problems cause the country’s economy as a whole. With budgets squeezed and belts tightened, UK households are beginning to focus on essential purchases like food and fuel, rather than perceived ‘luxury’ goods, causing retail sales to fall. That, in turn, has a negative effect on our GDP, which has currently slowed to just 0.2%. Meanwhile, general economic uncertainty plays its part, much to the dismay of UK workers.
The chief UK economist at Pantheon Macroeconomics, Samuel Tombs, explained:
‘Firms are responding to rising raw material costs and uncertainty about the economic outlook by doubling down on pay awards.’
Essentially, then, spiralling costs and uncertainty is driving businesses to hold back on any meaningful pay rises for employees, since doing so may stand to put many of them out of business in the long-run (and, ultimately, adding to those unemployment figures). So, rather than a single reason – or, indeed, a single silver bullet to slay the grim economic outlook – there are many factors all conspiring, in perfect storm formation, to further fuel the growing sense that the pound in our pocket isn’t worth quite as much as that right now.