Wage growth falls back against rising living costs

Date : 15 February 2022

The UK labour market maintained its trajectory over December 2021 with unemployment falling and vacancies rising. Paradoxically, however, there was also a fall in “real” wages for many workers.

The latest information released by ONS shows the unemployment rate continuing to trend down, decreasing by 0.2% over the quarter to 4.1%. This remains the lowest level since March 2020, the beginning of the COVID-19 pandemic.

Job vacancies across the UK economy continue to increase, especially in the hospitality industry, increasing over the month by 3.4% and 4.1% respectively. The hospitality sector, making up just 3% of GDP, now accounts for over 13% of all vacancies across the UK.

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The pressure employers are under to fill vacancies, increases the value of work. The average weekly wage is rising, up 4.2% over the year to December 2021. However, adjusting for the impact of RPI inflation, the increased value of work disappears altogether. Overall, workers are 2.7% worse off than a year ago.

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IGD Opinion

These results illustrate the fine line policy makers must tread over the coming months to dampen inflation and maintain the economic recovery. Global inflationary pressures limit the impact policy can have in solving inflation, whilst businesses, battered by the impacts of COVID-19 are less able to raise salaries. As the Bank of England warned earlier this month, the UK should be prepared for the biggest fall in living standards since records began.

This fall in living standards will hit the most vulnerable households hardest, a number of which work within the food and drink sector. Policy and support must be targeted and impactful in order to shield these households from the worst of the impact of inflation.

Government studies suggest that about 8% of UK households – more than 600,000 people – were food insecure even before the arrival of COVID-19. For many, the coming year will be about survival.

This is covered in more detail in the latest free Viewpoint report – Will inflation kill the recovery.

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