Good news for workers as pay growth exceeds inflation

After a hiatus in October – due to concerns over data quality - ONS has issued new figures on average pay in the UK. These figures show pay growing ahead of inflation, implying “real terms” improvement in the value of work.

Average pay data should be used with caution, however, since it may conceal wide variations between activities and job roles.

Methodology and sampling also have an influence – other data on pay (eg: HMRC tax records) suggest that pay growth is a little lower than the ONS reading, although still high.

Furthermore, around 30% of households – mostly poorer households – receive the bulk of their income from sources other than work including benefits, pensions and investments.

IGD’s ShopperVista Confidence Index (for ShopperVista subscribers) suggests that many shoppers continue to feel negative about their financial future, especially the least affluent consumers.

The Bank of England anticipates that pay growth will ease in 2024, although IGD expects a large increase in the National Living Wage in April, which would mean further gains for the lowest-paid.

IGD Viewpoint:

Using the CPI measure of inflation, average pay in the UK has now been rising in “real terms” for three consecutive months, which is good news for at least some workers and may be a sign that economic hardship is easing.

However, CPI is only one of a range of inflation measures and it is quite narrow. The older RPI measure is wider and includes more coverage of housing costs. Using this inflation measure, real wages are still falling.

Either way, it will take some time to compensate for losses to real pay that workers have suffered in recent years, even in a “best-case” scenario.

In the meantime, accommodating high wage growth will be a challenge for many employers, especially in labour-intensive service businesses.

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