Downturn sees average real wages collapse to a record low

ONS pay figures adjusted for RPI inflation at weakest since 2001

Ben Chu
Thursday 17 October 2013 09:36

Average weekly wages have slumped to their lowest level on record, as the biggest squeeze on living standards in more than a century continues despite the economic recovery.

The Office for National Statistics (ONS) yesterday reported that average weekly earnings in August were £447. The Resolution Foundation think tank said that adjusting for inflation using the retail price index (RPI) took this measure of pay down to its lowest level since records began in 2001.

"It is now well-established that this has been a tough downturn for wages," said James Plunkett of the Resolution Foundation. "But perhaps most worrying today is that there's still no sign of the wage squeeze ending."

Using the consumer price index (CPI) to deflate average wages revealed a slightly less drastic picture, but even this deflator put wages at their lowest level since November 2003, suggesting a lost decade of pay growth.

The economy grew by 0.3 per cent in the first three months of the year, followed by a 0.7 per cent expansion during the second quarter. Forecasters are predicting a further gain in the third quarter. But despite the GDP growth, average wages are still falling in real terms.

The ONS said earlier this week that the CPI inflation rate was 2.7 per cent in September, unchanged on the previous month.

Average total weekly pay over the three months to August rose by just 0.7 per cent on the previous year, confirming that real wages are still in decline, as they have been since the financial crisis began in 2008.

The ONS also reported yesterday that the unemployment rate was 7.7 per cent in the three months to August, down 0.1 percentage points from the three months to May.

The agency estimated that the number of people out of work fell by 18,000 over the three months, taking the total number of jobless to 2.49 million.

The Bank of England has said it will not even consider a rise in interest rates until the unemployment rate falls below 7 per cent, something it does not anticipate occurring until 2016. But some City economists expect this level to be reached sooner.

"[Our] forecast is for the 7 per cent rate to be reached in Q1 (first quarter) 2015," said Ross Walker of the Royal Bank of Scotland.

"The May election 2015 does not preclude the first Bank Rate hike coming in that month but Q3 2015 is probably more likely"

The number of people claiming Jobseeker's Allowance declined again in September, falling 3 per cent on August to 1.35 million. And the ONS said total employment, both part-time and full-time, grew in the three months to August by 155,000 taking the numbers in work aged 16 and over to 29.87 million.

However, there was still evidence of slack in the labour market with the report showing 18.5 per cent of part-time workers – a record ratio representing 1.5 million people – are doing so because they are unable to find a full-time job. Youth unemployment was 958,000 in the three months, down by 1,000.

Public sector: First pay fall on record

Average public-sector wages declined for the first time on record, the Office for National Statistics confirmed yesterday. Total pay in the public sector fell by 0.5 per cent in the three months to August compared to the same period of 2012. The revelation comes as thousands of teachers go on strike across the country today over the Government's proposals to impose performance-related pay on the sector. The strike will affect the North-east, the South-east, the South-west, Cumbria and London.

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