UK workers hit by the biggest wage squeeze in 45 years

Latest ONS figures reveal that real average weekly wages decreased by 3% in the three months to June.

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In reaction to the latest ONS labour market figures, the Resolution Foundation said today (Tuesday) that real average weekly wages decreased by 3% in the three months to June, the worst decline since 1977.

The most recent data is dominated by near double-digit inflation, which, according to the Foundation’s examination of longer-term ONS and Bank of England pay statistics, has resulted in the most severe pay squeeze in forty-five years.

With the consequences of last year’s furlough adding almost 0.5 percentage points to measures of annual pay growth, the actual extent of Britain’s pay squeeze is far more severe than official data show, according to the report.

Despite substantial nominal wage growth and a tight labour market, this severe real wage decline has occurred.

In the three months leading up to June, regular pay increased by 4.7%, while total compensation, including bonuses, increased by 5.1%.

The Foundation observes that the narrowing gap between regular and total pay levels shows that some of the bonuses and one-time payments that have lifted total pay in recent months are now reflected in higher pay settlements, giving a longer-term pay gain.

In recent months, the size of the labour market has stayed steady, with a little decline in employment and a rise in inactivity offsetting the previous positive news regarding labour market participation.

While vacancy rates have declined from record highs, the labour market remains active, with almost a million (948,00) people switching employment in the previous three months, much more than the average of approximately 700,000 persons.

Nye Cominetti, Senior Economist at the Resolution Foundation, said: “Near double-digit inflation has brought about the biggest pay squeeze in Britain since 1977 as pay packets shrink by around 3 per cent.

“The scale of this pay pain is even deeper than official figures suggest too, as pay growth estimates are still artificially boosted by the effects of the furlough scheme last year.

“This squeeze has come about despite robust pay growth and a lively jobs market, with pay settlements strengthening slightly, and almost a million people moving jobs in the last three months.

“There is no evidence yet of big wage-price spirals, rising unemployment, or a major return to work brought about by falling household incomes.

“Whether these trends materialise in the months ahead will help determine the scale and distribution of the latest economic crisis.”

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