Millions of workers are being hit by the sharpest fall in real wages on record, official figures revealed on Tuesday as Britain plunged deeper into the cost-of-living crisis.
Regular pay, excluding bonuses and taking into account sky-high inflation, nose-dived by 4.1 per cent in the three months to June, compared with a year earlier, according to the Office for National Statistics.
“The real value of pay continues to fall,” said ONS director of economic statistics Darren Morgan. “Excluding bonuses, it is still dropping faster than at any time since comparable records began in 2001.”
Inflation hit 9.4 per cent in June and is forecast by the Bank of England to spiral to more than 13 per cent in the autumn, piling economic misery on households. Many families are being forced to make cutbacks including in their weekly shop with food price inflation having hit 11.6 per cent, according to separate research.
The Resolution Foundation think tank said the UK was now in the grip of the “deepest pay squeeze in 45 years”.
Economists also warned that the Bank of England’s Monetary Policy Committee could raise interest rates by 0.5 percentage points next month to control inflation, hiking mortgage payments for millions of homeowners.
The grim news highlighted the scale of the challenge facing Liz Truss or Rishi Sunak when the new Tory leader, and Prime Minister, is announced on September 5. Their domestic in tray is likely to be dominated by the cost-of-living woes including spiralling energy bills, a series of strikes and dealing with the NHS crisis, with millions of people waiting for operations, treatment and appointments.
Tuesday’s official figures, though, were not all bad news, with the number of UK workers on payrolls rising by 73,000 between June and July to 29.7 million.
Despite warnings that Britain could be heading for recession, the unemployment rate for April to June 2022 only nudged up by 0.1 percentage points on the quarter to 3.8 per cent, with redundancies “still at very low levels”.
Vacancy numbers hit 1.27 million over the three months from May to July, slipping by 19,800 in the first signal the UK’s hot labour market could be cooling. Responding to the figures, Chancellor Nadhim Zahawi said: “Today’s stats demonstrate that the jobs market is in a strong position, with unemployment lower than at almost any point in the past 40 years.”
He added: “Although there are no easy solutions to the cost-of-living pressures people are facing, we are providing help where we can. We are delivering a £37 billion package of help for households through cash grants and tax cuts so people can keep more of what they earn.”
But shadow work and pensions secretary Jonathan Ashworth said: “Because of the Tories’ failure on the economy, families face plummeting real wages and soaring energy bills. “Yet, this zombie government is offering no solutions to the cost-of-living crisis.”
Liberal Democrat Treasury spokeswoman Sarah Olney, MP for Richmond Park, added: “Families are being hammered by a cost-of-living catastrophe and yet the Government is nowhere to be found.”
Meanwhile, a supermarket chief warned that Britain’s drought is going to push up food prices even higher than the 11.6 per cent rise, costing shoppers more than £530 extra a year. Iceland boss Richard Walker also stressed that the impact of inflation on groceries was going to go on for “quite some time yet”. He gave the bleak outlook after the latest figures from market researchers Kantar put grocery price inflation at 11.6 per cent over the past four weeks, compared with a year ago, the highest since this data trend was started in 2008.
Fraser McKevitt, head of retail and consumer insight at Kantar, said: “As predicted, we’ve now hit a new peak in grocery price inflation, with products like butter, milk and poultry in particular seeing some of the biggest jumps.
“This rise means that the average annual shop is set to increase by a staggering £533, or £10.25 every week, if consumers buy the same products as they did last year.”
Mr Walker explained that the high food prices were not expected to quickly start to fall after farmers have suffered from the scorching summer.
“It’s going to be really tough,” he told BBC Breakfast. “As well as the war in Ukraine, and commodity price inflation and everything else in between, we have a drought in this country which is going to affect crop yields in September and October. So it’s one thing after another.”
In a sign of the scale of the crisis, Iceland is offering shoppers short-term, interest-free loans of £25 to £75 to help them through difficult patches.
Economists also stressed that the MPC could increase rates from 1.75 per cent to three per cent in coming months to try to tame inflation which has been fuelled by high gas and oil prices largely due to Vladimir Putin’s invasion of Ukraine.
They highlighted the strong employment data and regular pay, excluding bonuses but not taking into account inflation, growing by 4.7 per cent over the three months to June. Analysts had predicted that wages would increase by 4.5 per cent.
Ruth Gregory, senior UK economist at Capital Economics, said: “The robust rise in employment in June together with the acceleration in wage growth will heap pressure on the Bank of England to raise interest rates by 50 basis points rather than 25 basis points at the next policy meeting on 15th September.”
She added: “With wage growth running well above the rates of 3.0-3.5 per cent that are consistent with the two per cent inflation target, it supports our view that the Bank of England will have to raise interest rates further than most anticipate to three per cent.”
