The great inflation pay squeeze: will wages rise any time soon?

High inflation is having a big impact on UK salaries just as the cost of living crisis begins to bite. So, will wages finally start to creep up this year?

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New data reveals that UK pay is lagging behind inflation, meaning workers’ salaries are effectively shrinking.

So if you’re caught up in the cost of living squeeze, then what can you do about it? And will wages (finally) start to rise this year? Let’s take a look.

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Inflation squeeze: what does the data reveal about UK pay?

According to the Office for National Statistics, the total pay of UK workers grew 4.2% in the year from September to November, while regular pay grew 3.8%. ‘Total pay’ includes account bonuses, while ‘regular pay’ does not.

Taking into account the latest Consumer Prices Index, this new data reveals that UK pay is significantly lagging behind the rate of inflation. This effectively means that UK workers are effectively being paid less than they were a year ago.

This fact may be particularly worrying for salaried workers struggling with the current cost of living crisis. In 2022, National Insurance, energy bills, and the general prices of goods and services are all set to go up. 

Perhaps unsurprisingly, the extent of wage rises differed between sectors. According to the ONS, manufacturing reported the lowest wage inflation (2.1% before inflation). Meanwhile, wage inflation was highest for the finance and business sectors (5.8%). For the public sector, wage inflation was 2.6%.

What else does the data reveal?

Aside from highlighting sluggish wage growth across the UK, the ONS’ report also reveals that average weekly earnings in the UK stood at £588 for total pay, and £550 for regular pay. It also highlights how the number of employees grew substantially towards the end of last year.

For example, there were 29.5 million employees in December 2021, an increase of 184,000 compared to November. It was also almost half a million more than the UK’s employment level before the pandemic. However, it is worth noting that part-time work is likely to be driving these high figures.

In terms of job vacancies, the number of roles advertised hit 1.24 million between September and November last year. This is a record high figure.

The report also reveals that the number of redundancies hit a record low at the end of 2021. Between September and November, just 2.8 people out of every thousand were made redundant, according to the ONS.

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Why are real wages falling?

Growing employment, falling unemployment and low redundancies are all factors that should lead to higher salaries. That’s because these three components suggest that the economy has a shortage of workers, so employers must therefore compete to attract staff. The easiest way to do this is to offer higher pay.

Yet the latest data from the ONS reveals that this simply isn’t happening in the UK right now. 

This may be partly explained by the fact that sectors are experiencing varying levels of wage growth. As Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, explains: “The pain won’t be felt evenly, because pay rises differ dramatically between different sectors.

“Those in the financial and business services sector have seen inflation-busting 6.8% rises during the year, while the private sector has fallen way behind the cost of living, with wage rises of just 2.6%. Worst off of all are those in the manufacturing sector, where wages have risen just 2.1% in a year – less than half the rate of inflation.”

Coles also highlights how, on a more general level, sluggish wage growth will have added pressure to those already struggling with rising living costs. She explains: “Inflation has waged war on pay and in November, salaries actually slid once inflation was taken into account. This has piled on the pressure for those struggling through the cost of living crisis, and things are going to get even worse.”

Will real wages start to rise this year?

Sarah Coles suggests that real wages may pick up later in 2022, as long as inflation starts to fall.

She explains: “The good news is that there’s every sign that real wages will recover during 2022, and that falling inflation through the second half of the year will allow pay to catch up. However, there are no guarantees.”

Yet, despite Coles’ positive tone, she cautions that it can often take several years for real wages to creep up. She explains: “We’re no strangers to falling wages. In the aftermath of the financial crisis, pay spent 12 years in the doldrums, and we only actually saw pay top pre-crisis levels in February 2020 – just as the pandemic was warming up to crush pay again.”

Will you be awarded the typical pay rise this year? Whether you’re in the public or private sector, see our article that looks at who will pocket the average pay rise in 2022.

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