Nominal pay growth may be slowing, real pay remains under severe pressure

New data from ONS suggests that nominal pay growth may be slowing. With inflation still very high, this will place still further pressure on the incomes of many workers.

Data from ONS shows that average nominal pay in the UK continues to rise strongly, but there is some evidence that the rate of growth is slowing.

Average pay, including bonuses, in the UK was £630 per week in January 2023, up 5.4% year-on-year. This rate of growth was quite strong by historic standards, but still a little slower than was seen over 2022.

A possible reason for the slowdown may be that inflation in some parts of the economy is also slowing, making it harder for employers to fund generous pay increases.

As always, headline figures conceal considerable complexity. Pay in the public sector previously lagged far behind the private sector, but has recently begun to rise more strongly.

This may explain why industrial disputes were less widespread in January, with 220,000 working days lost versus the 822,000 lost in December.

Rising nominal pay is good news for workers and helps to support demand, but – in spite of weakening inflation – living costs are still outpacing inflation, leaving most workers worse-off in “real terms”.

IGD calculates that “real pay” in January 2023 was about 8% lower year-on-year (using RPI to measure inflation) or about 5% (using the CPI).

Real pay has now been declining for more than a year and will likely take a long time to recover losses, even under “best-case” economic conditions.