ONS labour market data: UK workers suffer 2.9% hit to real wages

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

“Britain’s cost-of-living crisis is continuing to batter real wages - the purchasing power of worker’s pay after factoring in inflation – according to Office for National Statistics data released today.

“While growth in regular pay, excluding bonuses, was 5.4% on the year in the three months to August, this was trounced by inflation, which currently sits at a 40-year-high of 9.9%. It means real pay dropped 2.9% between June to August once inflation was factored in. Meanwhile, real total pay, which includes bonuses, fell 2.4% over the period.

“The hit to pay growth magnifies the financial struggle for workers who are not only having their incomes eroded by high food and energy prices but also the growing cost-of-borrowing crisis. The harsh reality is that employee spending power is now heavily hampered by rising costs and with inflation expected to peak above 11% this year, wages will get stretched even further.

“Despite the financial pain for workers, the labour market remained robust overall with the unemployment rate dipping slightly to 3.4% in the three months to August – the lowest rate since December to February 1974 – and the number of payrolled employees rising by 69,000 in September to a record 29.7 million.

“However, couple the ever-present cost-of-living crunch with soaring borrowing costs – after two- and five-year fixed-rate mortgages crossed the 6% mark for the first time in more than a decade – and it’s only natural that many jobseekers are on the hunt for better-paid roles to offset higher household expenses.

“Fears of a wage-price spiral seem unlikely though because the labour market is now at a turning point amid early signs of a slowdown in hiring as business confidence retreats and recessionary fears rise.

“One indication that employers are already re-evaluating hiring plans can be seen in the drop in UK vacancies in the July to September period fell by 46,000 on the quarter to 1,246,000 – the third decrease in a row - as businesses scale back growth ambitions in the midst of troubling economic times.

“Another stark warning of the shifting employment landscape came from September’s S&P Global Purchasing Managers’ Index, which found consumer confidence rocked by the cost-of-living crisis and stagnant growth in the services sector, which accounts for almost three quarters of the economy.

“Meanwhile, accountancy group BDO’s business output, optimism and employment indexes all fell in September as rampant inflation took its toll on businesses, damaging hiring intentions in the process with some firms forced to make staff cuts and others evaluating whether their businesses remain viable.

“The Government may have rolled out its ambitious ‘Growth Plan’, but Chancellor Kwasi Kwarteng has already been forced to retreat on scrapping the 45p tax rate and bring forward his economic plan to balance the government's finances by almost a month after the markets were spooked by his radical tax cutting measures.

"Amid so much turbulence, it’s no wonder businesses are cautious about expanding their workforce as they wait to see what the Bank of England announces at its next meeting on November 3. What is clear for now is that demand for workers will soften in the near term, reducing the upward pressure on wages as the fallout from the war in Ukraine and rising borrowing costs continue to constrain consumer demand.”