Why are wages so far behind inflation in the UK?

Office for National Statistics says average regular earnings rose in three months to October but still failed to keep up with inflation

Britons saw their basic pay fall at the fastest pace on record this year due to soaring prices

Britons saw both their average total pay and regular pay rise by 6.1 per cent between August and October – in the latter instance the highest since the onset of the coronavirus pandemic, according to the the Office for National Statistics (ONS) – but wages still failed to keep pace with runaway inflation.

The figures indicate that average weekly earnings for total pay in October 2022 was £624 and regular pay was £583.

Private sector workers saw their pay rise 6.9 per cent before inflation – three times as fast as their counterparts in the public sector, who received a 2.7 per cent increase.

But, while salaries increased in cash terms, the rise was dwarfed by soaring costs for gas, electricity, fuel, food and other goods, which have pushed the overall inflation rate to 10.7 per cent.

The situation sets Rishi Sunak’s government on course for further clashes with public servants including nurses, doctors, lawyers and teachers who have seen the value of their incomes collapse this year, adding to the pain of a decade of falling real wages.

If wages are still rising, why is pay lagging so far behind inflation?

Big increases in pay are still not proving enough to offset the steep hikes in the cost of living. October’s real wages outcome comes off the back of a surge in inflation this summer.

Inflation jumped back to a 40-year high of 10.7 per cent in December, a month in which the British public are battling a cold snap and energy bills that remain high even after the goverment stepped in to stop regulator Ofgem from hiking its energy price cap again by 80 per cent to £3,549 for the average household, freezing it instead at £2,500.

That gesture was initially set to hold for two years but has since been rolled back to just six months by new chancellor Jeremy Hunt, seeking to restore order to the public finances after the unmitigated disaster of his predecessor Kwasi Kwarteng’s “mini-Budget”.

Why is public sector pay more affected than the private sector?

Employees in the private sector are able to demand big bonus handouts to help them offset the cost crunch but this is not something public sector workers are able to command.

What is the government doing to help ease the pressure on wages?

The government launched a further £21bn support package for households to help tackle the mounting cost of living crisis earlier this year, including a £400 discount on gas and electricity bills for every home.

In terms of direct help on wages for those on the lowest incomes, Mr Hunt raised the National Living Wage in his Autumn Statement of 17 November to £5.28 an hour for apprentices, £10.18 for workers aged 21-22 and £10.42 for the over-23s.

But there are calls for the embattled Mr Sunak to do more as public sector workers are becoming increasingly disgruntled at their drop in real pay.

Can the Bank of England help?

The bank has been flagging concerns over a so-called wage-price spiral in the UK as firms have been hiking pay across sectors and nationwide in response to hiring shortages and as employees begin to demand more pay in the face of surging inflation.

It has increased interest rates from 0.1 per cent to 2.25 per cent since last December to help tackle inflation while, controversially, its governor Andrew Bailey has urged workers not to demand pay rises to help keep a lid on costs, which saw him come under heavy fire.

Where will wages go from here?

Experts believe the jobs market will start to falter as the cost crisis sees consumers cut their spending, with the bank forecasting a rise in the unemployment rate to around 5.5 per cent on the horizon.

It is expected that, facing steep price rises themselves and weaker trading, firms will be forced to slow hiring and rein in pay rises for staff.