UK pay increase lags behind inflation

As inflation rises, pay in real terms is declining for the first time since the summer, indicating the Bank of England may act faster and increase interest rates.

The latest ONS labour market stats show that in December of last year, 29.5 million people were working in the UK, up from 184,000 in November.

This is an increase of 409,000 people from the pre-pandemic level of February 2020.

The unemployment rate in the UK has decreased slightly to 4.1%.

However, wages increased at just 4.2% per year, which is less than inflation, at 5.1%.

Borrowing rates may rise as early as February.

Frances O’Grady, TUC general secretary, said:

While it’s good to see employment continuing to rise, on pay it’s the same story of a squeeze on workers.

“Working people deserve a decent standard of living and a wage they can raise a family on. But instead, following the worse pay squeeze for two centuries, real pay is falling, and they now face a cost-of-living crisis.

“We urgently need to get pay packets rising across the economy – or too many families will have to choose between paying soaring bills or putting food on the table.

“Ministers must give unions more power to go into workplaces and negotiate better pay and conditions, give our public sector workers a decent pay rise, and get the minimum wage up to £10 an hour immediately.”

UK firms hired a record 184,000 staff in December, while job vacancies hit an all-time high.

Neil Carberry, chief executive of the Recruitment & Employment Confederation, said:

The strength of the UK jobs market remains remarkable by any historic comparison, as vacancies rise and unemployment drops.

“It’s clear that temporary and part-time work is playing a key role as people find new roles in different sectors as the economy changes rapidly.

“More short-term and part-time roles may also reflect greater flexibility from firms as they struggle to hire in this market.

“The big issue now is capacity constraint – there are hundreds of thousands fewer workers in the labour market than before the pandemic.

“Over time, that will affect the economy’s ability to drive prosperity.

“Firms need to be looking at new approaches to developing their workforce, while government needs to work with businesses on the skills and job matching support necessary to address rising economic inactivity.

“Staff shortages will outlive the pandemic as an economic issue – recruiters are well placed to support businesses in this market with the latest insight and advice.”