UK wages in biggest drop since records began as inflation soars

Wage packets have seen the fastest drop in value since records began due to inflation dwarfing pay rises. 

When adjusted for inflation, regular pay fell by 2.8 per cent between March to May 2022, new figures from the Office for National Statistics (ONS) have shown. 

Despite wages growing at a “healthy rate of 4.3 per cent”, inflation is currently at 9.1 per cent, so is outstripping this growth. As a result, pay has fallen at the fastest rate since records began in the early 2000s.

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“The cost of living crisis is laid bare today,” said Stephen Evans, chief executive of Learning and Work Institute. “With energy bills set to rocket further in the autumn, this must be top of the new prime minister’s in-tray.”

But the crisis is being felt increasingly unevenly, with sectors such as finance seeing larger pay of 6.2 per cent, while the public sector saw the lowest pay rises, at 1.9 per cent. With inflation (measured by the Consumer Price Index) hitting 9.1 per cent in May, neither groups were getting a real pay increase.

With minimal growth in the public sector, unions are set to reject the government’s offer of a 5 per cent pay rise for teachers, nurses and doctors. These sectors are some of the hardest hit by the recruitment and retention crisis that is seeing 500 nurses and midwives quitting each week.

The National Education Union said the offer needed to be “substantially better” or it would be holding strike ballots for teachers in the autumn.

Charities, too, saw significantly lower wage growth than businesses, up only 3.8 per cent, compared to 5.6 per cent for people working in business, recent Bank of England data showed.

“As real pay continues to fall, cost of living pressures will intensify; driving up demand for charities’ services,” said Rachel Gomez, economist at Pro Bono Economics. 

“Lagging pay may fuel burnout and recruitment difficulties for charities, even as demand for their help continues to spike.”

However, with unemployment at a record low of 3.8 per cent, The Resolution Foundation highlights that employees can enjoy high job security as employers compete for staff during a scarcity of labour.

Nye Cominetti, senior economist at the Resolution Foundation, said: “People are feeling the effects of the cost of living crisis in their pay packets rather than their job security. Despite healthy wage growth in the private sector, near double digit inflation means that their real-terms value is falling at a record rate.

“But while everyone is experiencing pay packet pain, the jobs market at least remains resilient with unemployment close to a record low, inactivity falling and employment rising.”