Wage Growth Outstrips Consumer Price Index Amid Drop in Employment

The City of London financial district can be seen as people walk along the south side of the River Thames, in London, on March 19, 2021. (Henry Nicholls/Reuters)

Wage growth in the UK has outpaced the rate of inflation, while the unemployment and economic inactivity rates have increased.

Official figures, released on Tuesday, showed that regular pay in Britain, excluding bonuses, was 7.8 percent in May to July. It is the same rate as the previous three-month period.

Growth in average total pay, which includes bonuses, was 8.5 percent, a 0.3 percent increase on the rate, published in August.

As it stands, salaries are now outpacing the rate of price growth in the economy, given that the consumer price index (CPI) measure of inflation for July was 6.8 percent.

This may be seen as positive statistics for the economy, but for Britons, faced with the cost-of-living crisis and higher energy bills in the coming winter months, it may not represent an actual financial relief.

Surges in energy prices drive the food costs and the overall CPI up. While food and energy costs were the main drivers of a cooling in CPI between June and July, this is likely to change in the upcoming colder months.

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Chancellor Jeremy Hunt welcomed the pay data on X, formerly known as Twitter.

“Good news today, wage growth is higher than inflation for the first time since March 2022. But the only way we can keep real wages rising sustainably is by halving inflation this year, we must stick to the plan,” Mr. Hunt said.

While Prime Minister Rishi Sunak has been “working day in and day out” trying to tackle high inflation rates for many months, it still remains high by historical standards.

In January, Mr. Sunak pledged to halve inflation this year to give Britons financial security. The government’s opposition, however, has not been in a rush to praise Downing Street for its efforts in tackling high inflation.

Labour ministers have been criticising the government for failing to bring the economy back to the pre-pandemic levels.

“Whatever the Tories are doing, it’s not working,” Alison McGovern, the shadow minister for work and pensions, said on Tuesday.

She noted that the latest ONS figures showed that employment was still not back to the pre-pandemic level.

Drop in Employment

The ONS reported a decrease in employment rate by 0.5 percent, compared to the previous quarter. On the other hand, the unemployment and economic inactivity rates have increased.

The unemployment figure was estimated at 4.3 percent, which is 0.3 percent higher than before the coronavirus pandemic.

In turn, economic inactivity, which includes people who are not in paid work, but also not looking for a job, stood at 21.1 percent. This is 0.9 percent higher than the pre-pandemic level.

Commenting on employment figures on X, work and pensions secretary Mel Stride welcomed the news that–compared to the pandemic peak rate–economic inactivity was down.

However, he made no mention of the fact that there were more unemployed people in the UK, than in the last quarter.

Responding to the latest jobs and pay data, the Trades Union Congress said that UK economy was in the “danger zone.”

TUC General Secretary Paul Nowak said that while average pay has finally outstripped inflation, real wages across the public sector, retail, hospitality and construction were still falling.

“If pay packets had been growing at pre-crisis levels, workers would be on average £14,700 better off. It’s little surprise that families are worried sick about paying their bills and keeping their jobs,” Mr. Nowak said.

The government has been trying to tackle economic inactivity and get more people into work, said Minister for Employment Guy Opperman.

Last week, the Department for Work and Pensions announced plans to overhaul the Work Capability Assessment to encourage people, who had previously been deemed too sick to work, to find fitting jobs.