| 19.4°C Dublin

UK cost-of-living squeeze intensifies with drop in real wages

Close

Chancellor Rishi Sunak. Credit: Getty Images

Chancellor Rishi Sunak. Credit: Getty Images

Chancellor Rishi Sunak. Credit: Getty Images

The squeeze on UK living standards intensified in March as wages fell further behind the rate of inflation, official figures showed.

Adjusted for prices, average earnings excluding bonuses fell by 1.9pc from a year earlier, the biggest decline since 2013, the Office for National Statistics said Tuesday.

Soaring prices are robbing workers of the benefits of the strongest labour market in living memory.

Wages excluding bonuses jumped 4.2pc in the first quarter, double the 2.1pc average in the decade before the pandemic. That increase was more than eaten up by the surging cost of living.

With inflation on course to exceed 10pc by the end of the year and the government raising taxes, consumers are facing an almost unprecedented decline in their real disposable incomes.

Some analysts say the hit could tip the economy into recession, raising questions about how far the Bank of England will raise interest rates and piling pressure on the government to do more to support those hit hardest by the squeeze.

"I understand that these are anxious times for people," Chancellor of the Exchequer Rishi Sunak said in a statement. "It's reassuring that fewer people are out of work than was previously feared."

Frances O'Grady, general secretary of the Trades Union Congress, said millions of families are at "breaking point" as prices of everything from energy and food to clothes and transport soar.

The labour market remained tight in the first quarter, with unemployment declining to 3.7pc -- the lowest rate since 1974 -- and job vacancies continuing to rise to record levels.

Employers are struggling to find workers because hundreds of thousands of people who left the workforce during the pandemic have chosen not to return.

Employers added 121,000 people to payrolls last month, more than double the forecast.

For the first time, there were more vacancies than people listed as unemployed in the first quarter.

Faced with acute labour shortages, private-sector companies sharply increased bonuses. As a result, total pay rose 7pc from a year earlier and was up 9.9pc in March alone, the biggest increase in any month since records began 22 years ago.

"We expect some of the heat to come out of the jobs market this year as the rising cost of living crimps spending power and cools the economy,” said Ana Luis Andrade from Bloomberg Economics.

Business Newsletter

Read the leading stories from the world of business.

This field is required

"But continued near term resilience in the unemployment rate increases the risk that the Bank of England will lift rates a little further than we forecast -- probably in June and possibly in August."

The BOE expects the jobless count to start rising at the end of the year as employers respond to a sharp slowdown in demand.

Policy makers are raising interest rates in an attempt to bring inflation back to the 2pc target.

The fear is that pay demands could take off across the economy if workers believe that high inflation is here to stay, triggering a damaging wage-price spiral.

However, forecasters are divided over how far borrowing costs will rise.

The BOE delivered a fourth successive increase this month to take the benchmark rate to 1pc, and money markets are pricing in almost 2.5pc within a year.

But economists on balance expect just two more 25 basis-point rises over the summer before policy is put on pause.


Most Watched





Privacy