Pay growth accelerates to end 18 month wage squeeze – but 15 year stagnation has left average earnings £230 a week lower than their pre-financial crisis trend

Real wages in June were higher than a year ago for the first time in 18 months – ending yet another painful pay squeeze across Britain. However, with unemployment rising and vacancies falling, the Bank will hope that pay rises will also start to cool in the coming months, the Resolution Foundation said today.

The latest data showed that pay growth continued to accelerate in June to 7.8 per cent across the economy, by 8.2 per cent in the private sector and 6.2 per cent in the public sector. CPIH inflation in June was 7.3 per cent.

The Foundation notes that pensioners may well be the ultimate beneficiaries of this mini pay boom – driven in part by one-off NHS bonuses – as pay growth in the three months to July will determine the size of a permanent increase in the state pension next April, if it’s higher than September’s inflation figure.

The Foundation adds that average regular pay is now slightly higher than the pre-financial crisis 2008 peak in real terms (at £613 vs £612 per week respectively) for the first time outside of the pandemic period. This unprecedented period of 15 year pay stagnation has come at a huge cost – real regular pay is £230 per week lower than if real pay growth had continued at the pre-financial crisis trend of 2.1 per cent.

The labour market continued to loosen, with vacancies falling for their 13^th consecutive months to 1,020,000, and short-term unemployment rising to its highest level since Dec-Feb 2021. While much of the unemployment rise has come from falling economic inactivity rather than employment, the Bank will hope that this further labour market loosening will soon curb pay growth and ease the pressure on inflation.

The Government meanwhile will be concerned that long-term economic inactivity due to ill-health continues to hit a record high of 2.6 million – and that the employment rate among older workers (aged 50-64), which led the UK’s impressive jobs growth pre-pandemic, remains 1.5 percentage points below its 2019 peak (at 71.2 per cent).

Nye Cominetti, Senior Economist at the Resolution Foundation, said:

“Pay growth accelerated in June to end Britain’s painful 18-month pay squeeze.

“This welcome news for workers won’t be shared by policy makers at the Bank of England though, as it will put further pressure on their efforts to curb inflation. They will hope that rising unemployment and falling vacancies will take the steam out of pay rises in the coming months.

“The big picture however is that pay packets today are now higher than they were before the financial crisis. This unprecedented 15 year stagnation has cost average workers £230 a week – and left Britain a far poorer country.”