Wages have surged at a record pace to overtake inflation for the first time in nearly two years, according to new Government data, but the cost-of-living crisis is far from over for many.
The Office for National Statistics (ONS) data could offer a £900 annual boost to pensioners if the Government maintains the “triple lock” at the highest possible level next year - but they could also spell further misery for rail commuters depending on how ministers calculate the cap on fare increases.
Rishi Sunak has cast doubt on whether he will stick to the increasingly costly pensions guarantee in the next Conservative manifesto.
Shadow deputy prime minister Angela Rayner said the Conservatives had “crashed the economy” but also refused to commit Labour to maintaining the triple lock - which sets increases to pensions at the level of July average earnings, inflation or by at least 2.5 per cent, whichever is highest.
“We will not make unfunded spending commitments,” the Labour frontbencher told BBC Breakfast.
Average regular weekly earnings excluding bonuses were up 7.8 per cent year-on-year in the three months to July, the ONS said. That was unchanged from June, but ahead of July’s inflation level, which had fallen to 6.8 per cent, meaning a boost in real terms to people’s incomes after nearly two years of decline.
Total pay including bonuses - the figure used to calculate state pensions from next April - jumped by 8.5 per cent, meaning that it exceeded inflation for the first time since March 2022.
Previous data showed that in the three months to June, growth in earnings including bonuses had finally equalled out with inflation. This time, it was marginally ahead - by 0.6 per cent.
Chancellor Jeremy Hunt welcomed the new data but said he would remain vigilant on inflation, ahead of the latest Bank of England meeting next week.
“Wage growth remains high, partly reflecting one-off payments to public-sector workers, but for real wages to grow sustainably we must stick to our plan to halve inflation,” he said.
The rate of UK unemployment meanwhile rose from 4.2 per cent to 4.3 per cent in the three months to July, the highest level for nearly two years, the ONS said.
“Earnings in cash terms continue to increase at a record rate outside the pandemic-affected period. Coupled with lower inflation, this means people’s real pay is no longer falling,” said Darren Morgan, ONS director of economic statistics.
“Unemployment continues to increase in the latest three months. Correspondingly, employment is down, driven by falls among men and the self-employed,” he added.
“The proportion of people neither working nor looking for a job is slightly up, with more students, as well as the long-term sick reaching yet another record.”
Mr Hunt said: “It’s heartening to see the number of employees on payroll is still close to record highs and that our unemployment rate remains below many of our international peers.”
Grocery price inflation meanwhile has dropped to its lowest level in more than a year, but the overwhelming majority of of consumers remain concerned about rising supermarket bills, other data from analysts Kantar showed.
Prices across grocers were 12.2 per cent higher than a year ago for the four weeks to September 3, down from the previous month’s 12.7 per cent, it said.
It was the sixth consecutive decline in the rate of price rises since the figure peaked at 17.5 per cent in March, “but 12.2 per cent won’t be a number to celebrate for many households”, said Fraser McKevitt, Kantar’s head of retail and consumer insight.
"Our data shows that 95 per cent of consumers are still worried about the impact of rising grocery prices, matched only by their concern about energy bills,” he said.
Attention now turns to the Bank of England, whose rate setters meet on September 21 a day after the ONS releases consumer price inflation (CPI) for August. They have already voted for 14 rises in a row.
The central bank’s closely watched measure of regular private-sector wage growth eased to 8.1 per cent for the three months to July, but that is still well below its forecast for the figure to fall to 6.9 per cent in September.
“This suggests that the Bank’s work is not yet done and supports our view that the Bank will raise interest rates by a further 25 basis points next week, from 5.25 per cent to a peak of 5.50 per cent, and keep rates there until the second half of next year,” Capital Economics UK economist Ashley Webb commented.
“That said, August’s CPI inflation data due to be released next Wednesday could still shift the dial,” he added.
