The gap between what workers earn and what they must spend to survive is widening at an alarming rate.
Despite average wages rising by 4.7 per cent between April and June, surging inflation meant real pay fell by 3 per cent, according to new ONS data.
The media have seized on this disparity between pay growth and inflation being the biggest since records began more than 20 years ago.
The fire and brimstone headlines probably overstate the pay squeeze a bit. Xiaowei Xu of the Institute for Fiscal Studies makes the wonkish but important point that the average wage figures exclude bonuses which form an increasingly important part of pay packets.
Including bonuses, real total pay fell by 2.5 per cent year-on-year – still dire, but in the same ballpark as 2011 (-2.3 per cent) and well above 2009 (-5.7 per cent).
And as Julian Jessop notes, real average earnings were still higher in June than their pre-Covid level, despite the sharp drop.
Still, the wage situation is bleak, and firms find themselves in a pay-rise bind.
The labour market is tight. Unemployment is close to an all-time low at 3.8 per cent, tilting the balance of power in wage negotiations in employees’ favour.
Yet as Karen Watkins, founder of Somerset-based Rowan Consulting, says: “Paying higher salaries is high stakes stuff as we enter a period of extreme economic uncertainty. Doing so may cause companies serious problems later down the line if their revenues come under pressure.”
The Bank of England is also worried that higher pay demands in response to rising prices will itself become a big driver of inflation which is already running riot.
Annual grocery bills are set to rise by £533 this year as food prices increase at the fastest rate since the financial crisis. Grocery price inflation jumped to 11.6 per cent for the four weeks to 7 August, up from 9.9 per cent in July, the highest rate since 2008. Staples like butter, milk and poultry recorded the steepest rises.
In response, consumers have been switching to cheaper alternatives. Sales of supermarkets’ own-brand goods grew 7.3 per cent in the 12 weeks to 7 August to 51.6 per cent of the market compared to branded products – the highest on record.
The belt-tightening reflects a brutal new reality for consumers. But as Maggie Pagano writes in this week’s column, small businesses are also being pummelled by soaring prices. The difference is that SMEs are being forgotten by the government, despite forming the backbone of the nation’s wealth. The fact small business owners tend to vote blue makes this foolish oversight even more bizarre.
On the plus side, there’s a chance the price of oil may have peaked, for the time being at least.
Weak economic data from China has driven a commodities sell-off with Brent crude, the global oil price benchmark, dipping below $93 a barrel yesterday, the cheapest since Russia invaded Ukraine, and way down from $127 in early March.
A stuttering Chinese economy isn’t necessarily something to be cheered. But dampened global demand for energy could bring UK consumers some short-term relief.