ONS labour market data: UK workers suffer 2.8% hit to their wages

  • Growth in employees' average total pay (including bonuses) was 5.5% and growth in regular pay (excluding bonuses) was 5.2% in May to July 2022. In real terms (adjusted for inflation), over the year, total pay fell by 2.6% and regular pay fell by 2.8%.
  • The unemployment rate for May to July 2022 decreased by 0.2 percentage points on the quarter to 3.6%, the lowest rate since May to July 1974. The most timely estimate of payrolled employees for August 2022 shows a monthly increase, up 71,000 on the revised July 2022 figures, to a record 29.7 million.

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Published: 13 Sept 2022 Updated: 13 Sept 2022

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

“Britain’s real wages, which reflect the purchasing power of worker’s pay after accounting for inflation, fell by 2.8% in the three months to July compared to the same period a year ago, according to data released by the Office for National Statistics today, as the rising cost of living continued to outpace pay growth.

“While growth in regular pay, excluding bonuses, was 5.2% in the May to July period, this was no match for inflation which hit a 40-year-high of 10.1% in July with the data highlighting just how squeezed worker finances are becoming.

“It means employee spending power is now severely compromised and with inflation expected to edge higher on Wednesday, when the ONS releases the latest reading, how far wages can go in the daily lives of workers will be tested once again.

“While the labour market appears robust overall with the number of payrolled employees increasing by 71,000 to a record 29.7 million in August and unemployment dipping to 3.6% in the three months to July, the cost-of-living remains a priority for many jobseekers as they hunt for better paid roles to offset the rises in food and energy prices.

“However, fears of a wage-price spiral might ease off if the chatter around an impending recession at the end of the year rings true. GDP might have risen slightly in July, up 0.2% compared to contraction of 0.6% in June, but that did little to offset the flattening economic growth in the three months to July as the fallout from the war in Ukraine and rising borrowing costs took its toll on the economy.

“Early signs that employers are already re-evaluating hiring plans can be seen in the drop in UK vacancies in the May to July period, – falling by 34,000 to 1.266 million – the largest quarterly fall since June to August 2020 and the second decrease in a row - perhaps as businesses started to scale back growth ambitions in the face of rising prices.

“Whether that trend will continue is now unclear following Liz Truss’s £150 billion energy plan, which includes the disinflationary two-year freeze in energy bills that saves households £1,000 on average a year compared to what they would have paid had the price cap had risen. This could potentially lead to a much milder recession than previously forecast, hopefully easing the pressure on jobs in the process.

“Some businesses, however, are already struggling with inflation at 10.1% - and with expectations it will edge higher again when the ONS reveals the latest figures on Tuesday, demand for workers may soften in the near term – in turn fanning the upward pressure on wages.

“While the freeze on energy bills has certainly been a positive move for household finances, as runaway inflation will be contained, the next step is to see what further fiscal measures Kwasi Kwarteng, the new Chancellor of the Exchequer, will unveil in his upcoming ‘mini-budget’ to cut the tax burden and help households handle the cost-of-living crisis.”

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