Pay growth outstrips inflation for first time in nearly two years

UK wages are outstripping inflation for the first time in nearly two years in welcome respite for households battered by the cost of living crisis.

The Office for National Statistics (ONS) said that regular earnings rose by a near record 7.8% in the three months to August and were 0.7% higher with Consumer Prices Index (CPI) inflation taken into account.

Revised figures from the ONS revealed that 7.9% annual growth in regular pay excluding bonuses in the previous three months to July saw wages exceed CPI inflation by 0.1%, having initially estimated flat real earnings growth.

It means that wages are rising faster than prices for the first time since October 2021.

But the figures also showed that pay growth is starting to ease back for the first time since January, while job vacancies fell for the 15th time in a row, in a further sign that Britain’s jobs market is cooling in the face of a torrent of interest rate hikes.

Chancellor Jeremy Hunt said: “It’s good news that inflation is falling and real wages are growing, so people have more money in their pockets.

“To keep this progress, we must stick to our plan to halve inflation.”

Growth in real wages will come as a relief to workers who have seen their pay packets eroded by sky high inflation for almost two years.

Wages have surged by record levels outside of the pandemic-skewed era, while inflation is also easing back, falling to 6.7% in August, having reached a 41-year high of 11.1% last October.

Official figures on Wednesday are expected by most economists to show another decline in CPI to 6.6%.

The latest data shows that total wages including bonuses jumped by 8.1% in the three months to August, although this was affected by NHS and civil service one-off payments.

Real total wages were 0.8% higher with CPI inflation taken into account.

The ONS added that public sector pay leaped 6.8% higher in the three months to August – one of the highest growth rates since records began in 2001 – although it continued to lag behind the private sector at 8%.

The Unite trade union said the rise in real wages will be “small respite” for many.

Unite general secretary Sharon Graham said: “Data suggesting pay rises have finally caught up with corrosive inflation will give hard-working families some small respite from the damage that has been wrought on household incomes by years of economic incompetence and mismanagement.”

There was also more mixed news on the wider employment sector, with provisional real-time figures estimating that UK workers on payrolls fell by 11,000 month-on-month to 30.1 million in September.

And the ONS revised down its estimate for the previous month, to a fall of 8,000 payroll workers in August compared with July against the 1,000 decrease initially reported.

Vacancies also dropped to 988,000 in the three months to September, down by 43,000 on the previous quarter and marking the 15th drop in a row.

Compared with a year earlier, vacancies were 256,000 lower between July and September.

The ONS has delayed the publication of the more comprehensive Labour Force Survey data – revealing the employment and unemployment rate for the three months to August – until October 24 due to concerns about the decline in the response rate for the survey.

Samuel Tombs at Pantheon Macroeconomics said the slight easing in the pace of wage growth – an inflation indicator that is closely watched by the Bank of England – should enable interest rate-setters to hold off from further rises.

“Signs that wage growth is losing momentum should persuade the MPC to keep Bank Rate at 5.25% again next month,” he said.

He added the Bank is likely to hold rates at 5.25% until next spring “and then to reduce it to about 4.5% by the end of 2024”.