Data from the UK’s Office for National Statistics released on Tuesday showed that real wages fell at a record pace in June, while unemployment remained flat.
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LONDON – Real wages in the UK, which reflect the power of employee pay after accounting for inflation, fell by an annualized 3% in the last quarter, according to data released by the Office of National Statistics on Tuesday.
While average pay — excluding bonuses — rose by 4.7% in the April to June period, according to the ONS, the cost of living is rising at a faster rate and outpacing wage growth.
Darren Morgan, ONS director of economic statistics, said this affects how far wages are in the daily lives of workers.
“Real pay continues to fall. Excluding bonuses, it is still falling faster than at any time since comparable records began in 2001,” he commented.
Higher energy and food bills put pressure on UK households The cost of living crisis continues to grip the country, along with the decline in consumer purchasing power.
UK inflation rose to a fresh 40-year high of 9.4% in June, and is expected to rise above 13% in October. The Bank of England responded to rising prices earlier this month by raising interest rates by 50 basis points to 1.75% — the biggest single increase in 27 years.
Lauren Thomas, UK economist at careers site Glassdoor, said inflation and rising prices are currently the main concern of workers.
“The only constant in 2022 is change and rising prices. Even with high wage growth and a tight labor market, workers are feeling the pinch as inflation emerges as the biggest winner. With real wages falling at a record 3.0 percent thanks to inflation, cost of living is a priority for many job seekers,” he said.
The ONS data also showed that unemployment remained stable at 3.8%, while job vacancies fell in the same timeframe.
James Smith, a developed market economist at ING, said the Bank of England will pay close attention to both wage growth and the UK unemployment rate.
“The Bank of England’s official forecasts point to a material rise in the unemployment rate over the next two years, but policymakers will be looking for signs that companies are ‘stocking up’ of staff even where margins are being squeezed, amid concerns about their ability to rehire again in the future. Wage growth has decent momentum now, and the committee will be concerned that it will be maintained,” he said.
Going forward, this could mean even sharper interest rate hikes by the Bank of England, Smith added:
“For now, we don’t think there is much in these latest figures to stop the Bank of England from hiking rates by 50bp again in September, even though we are nearing the end of the tightening cycle.”