ONS labour market data: UK workers feel the pinch as real wages fall 2.7%

Alice Haine, Personal Finance Analyst at Bestinvest, the DIY investment platform and coaching service, comments:

“Britain’s real wages - the purchasing power of worker pay after factoring in inflation - took another blow in the three months to September 2022, with the personal finance misery set to worsen this week as the nation braces itself for Chancellor Jeremey Hunt’s raft of tax rises and spending cuts in the Autumn Statement.

“While regular pay, excluding bonuses, rose 5.7% in the three months to September this was wiped out by inflation at a 40-year-high of 10.1%. It means real pay dropped 2.7% in the third quarter once inflation was factored in – one of the largest falls in growth since comparable records began. When bonuses are included in the figures, total pay rose 6% causing a slightly less severe decline in real total wages of 2.6%.

“It seems there is little to cheer about for workers at the moment, who are not only having their disposable incomes dented by higher prices on the goods and service they consume, but also soaring borrowing costs and the prospect of a two-year recession that has probably already started with GDP contracting 0.2% in the third quarter.

“With spending power now severely compromised, workers have the added worry of what Thursday’s budget will deliver with Hunt widely expected to freeze a raft of tax allowances and thresholds as he looks to plug a black hole in the public finances - moves that could see more people pulled into the tax net or higher tax bands as a result.

“With inflation expected to peak around the 11% mark in the fourth quarter, wages are set to get stretched even further. Despite the financial gloom, however, the labour market remained relatively robust overall with the unemployment rate rising slightly to 3.6% in the three months to September – and the number of payrolled employees rising by 74,000 in October to a record 29.8 million.

“While employee power remains high with the nation gripped by industrial action as workers demand better pay and many companies still rolling out bumper pay rises to retain staff amid rampant inflation, the employment landscape is likely to change in the months ahead as the reality of high prices and a long recession take their toll on household and business expenditure.

"The Bank of England expects unemployment to almost double to 6.4% by the fourth quarter of 2025 from its current level. While jobseekers grappling with the cost-of-living crisis and much higher mortgage repayments will naturally want to hunt out better-paid roles to cover their costs, when the word ‘recession’ is in the air, they might want to be evaluate that decision more carefully.

“Recessions and job cuts go hand in hand as companies look to slash costs whatever way they can to preserve the underlying business. Therefore, moving to a new company needs to be a well thought out decision for workers as it could leave them more exposed to layoffs if their new employer follows the rule of ‘last in, first out’.

“The quarterly drop in UK vacancies in the August to October period of 46,000 to 1,225,000 – the fourth decrease in a row – is evidence enough that companies are already scaling back on hiring amid retreating business optimism.

“While businesses may not be making the large-scale redundancies adopted by Elon Musk’s Twitter or Mark Zuckerberg’s Meta yet, partly because finding the right staff to fill vacant positions is still a big challenge, hiring freezes are becoming more commonplace. With so much uncertainty ahead, job security will become a key theme going forward with workers quickly realising that it’s better to have a job in these difficult economic times than no job at all.”