Pay for workers in Britain has fallen in real terms for the first time in more than a year, despite signs that employers shrugged off concerns over the Omicron coronavirus variant to continue hiring in December.
Average wages, after taking account of inflation, dropped in November for the first time since July 2020 amid growing concerns over the hit to living standards this year from high inflation and surging energy bills.
The Office for National Statistics said although average total earnings grew at an annual rate of 3.5% in November, the impact from soaring rates of inflation meant workers suffered a real-terms cut in their pay packets. The official rate of inflation reached a 10-year high of 5.1% in November, effectively meaning a 1.6% cut in pay.
Using its preferred measure of consumer price inflation including owner occupiers’ housing costs, it said real-terms pay had fallen at an annual rate of 0.9% in November.
UK faces a pay squeeze – and higher interest rates look likelyRead more
However, the latest labour market snapshot revealed steady gains for job creation despite the fallout from Omicron and worsening squeeze on pay. According to figures from HMRC, the number of employees on UK company payrolls rose by 184,000 on the month to 29.5 million, an increase of 409,000 on pre-pandemic levels as the jobs market continues to recover from Covid-19.
Reflecting staff shortages across the economy, the number of job vacancies rose for most industries over the three months to December to a record 1.2mi despite a slowdown in the rate of growth in recent months.
Pay chart
Employment experts said there were signs that Britain was emerging from Covid-19 with robust levels of employment but a tight squeeze on living standards that was set to persist well into 2022.
Hannah Slaughter, a senior economist at the Resolution Foundation, said that falling unemployment was a “remarkable success” but that inflation-adjusted pay was now shrinking for the third time in a decade. Real-terms pay also fell in 2017 after the Brexit referendum, when a hit to the pound drove up inflation, and between 2011 and 2014 after the financial crisis.
“Despite widespread talk of returning wage spirals, Britain is instead experiencing the return of shrinking pay packets,” she said. “The latest period of falling real wages – the third in a decade – is likely to have started as a far back as last summer, and is likely to continue beyond next summer too.”
Official figures due on Wednesday are expected to show inflation rose in December to the highest rate in at least a decade. The Bank of England has warned inflation could peak close to 6% in April, up from a current level of 5.1%. Labour and union leaders said the government urgently needed to respond to the cost-of-living crisis and was failing to boost levels of pay, despite Boris Johnson pledging to make Britain a “high skill, high wage” economy.
Jonathan Ashworth, the shadow work and pensions secretary, said: “Years of the Conservatives’ economic incompetence means working people today will not only be paying more in tax under the Conservatives but face heating bills rocketing, prices rising and inflation set to outstrip wage growth.”
Frances O’Grady, the general secretary of the TUC, said that while it was good to see employment continuing to rise, that workers were struggling with a fresh pay squeeze.
“Working people deserve a decent standard of living and a wage they can raise a family on. But instead, following the worse pay squeeze for two centuries, real pay is falling, and they now face a cost-of-living crisis,” she said.
Despite the fall in inflation-adjusted pay there were more positive signals from the jobs market, with unemployment continuing to fall despite the end of the furlough scheme.
Official figures for the three months to November showed the unemployment rate continued to fall, dropping to 4.1%, close to where it was before the pandemic began in spring 2020.
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The redundancy rate, which measures the number of people being made redundant for each 1,000 employees, dropped to the lowest level on records dating back more than a quarter of century. It comes after concerns that closing the Treasury’s multibillion-pound job support scheme would trigger a wave of job losses.
The chancellor, Rishi Sunak, said the latest figures were “proof that the jobs market is thriving”.
“From traineeships for young people to sector based work academies for those switching careers, our plan for jobs is continuing to create opportunity for all,” he said.
