Historic wage squeeze has now lasted four years

Wages rise slower than prices for 48^th month in a row while jobs figures continue to impress

Britain’s historic wage squeeze has now been running for four years as wages continue to grow slower than prices, according to new analysis from independent think tank the Resolution Foundation. The news came alongside further impressive growth in employment and another reduction in unemployment.

Official figures released today (Wednesday) from the Office for National Statistics show that average wages (excluding bonuses) rose 0.8 per cent comparing July to September 2013 with the same period a year ago. This is well below the current rate of inflation, 2.2 per cent CPI and 1.9 per cent RPIJ, the improved variant of the Retail Prices Index (RPI) now produced by the ONS. The average weekly wage is now £447.

The latest monthly data (covering the month of September) means that annual wage growth has now been outpaced by inflation for 48 months in a row. Annual CPI inflation has now been higher than average wage growth (excluding bonuses) for the last 48 months of data. Both the RPI and RPIJ measures of inflation have been higher than wage growth for 46 months of data.

The Resolution Foundation’s analysis also reveals that the wage squeeze has now created an entire lost decade for pay. Under any measure of inflation, average wages have now either fallen or seen no growth in the last ten years:

· Under the CPI measure of inflation, wages were £445 a week in September 2003 compared to £447 in latest data for September 2013, meaning average growth of just 0.04 per cent a year over the decade.

· Under the RPI measure, which includes the cost of mortgage interest payments, wages were £471 a week in September 2003 compared to their £447 level today, meaning they have fallen at an annual average pace of 0.5 per cent a year over the decade.

· Under the ONS’s new RPIJ measure of inflation, which improves on the formula for calculating RPI inflation, wages were £449 a week in September 2013, meaning average annual falls of 0.04 per cent a year over the decade.

The continuing weak performance of wages contrasts with positive news for employment, which has improved again in the latest data. Today’s new figures show that unemployment fell by 48,000 in the past year, with the unemployment rate falling to 7.6 per cent – down 0.2 percentage points from a year earlier. Comparing the period July to September with a year ago, there were 378,000 more people in employment, raising the employment rate for 16-64 year olds to 71.8 per cent.

James Plunkett, director of policy at the Resolution Foundation, said:

“With wages now having fallen for four years, we’re well and truly in uncharted waters. The story continues to be one of good jobs news balanced out by bad news for pay, as the impacts of the downturn continue to surprise expectations.

This week’s announcement of a fall in inflation will ease the pressure on pay packets to a degree, but wage growth itself still remains historically weak. Until that picks up, analysts are right to worry about the sustainability of the recovery—with pressure on household incomes from other sources, consumer spending rests heavily on a return to solid wage growth.” 

ENDS