Real wage growth falls again in July

Whilst employment is at a record high, workers are effectively experiencing a pay cut with public sector workers hit hardest.

The latest jobs report is out. The good news is the unemployment rate fell to its lowest rate since 1975 and the number of people in employment is at its highest level since records began. The bad news is that workers are effectively seeing a cut in their wages as real wage growth falls again.

Figures from the Office for National Statistics (ONS) show average weekly earnings grew by 2.1% in the three months to July 2017 compared to the previous three months. However, once adjusted for inflation, real wage growth actually fell by 0.4%. In the year to July, the inflation (as measured by the CIPH – Consumer Price Index including owner occupiers’ housing costs) rate rose to 2.6%.

In the ONS’ analysis of real earnings, you can see this graph below comparing nominal average weekly earnings with real average weekly earnings (once adjusted for inflation). So despite steady (albeit slow) growth in wages, inflation has meant people’s real pay is not growing.

The squeeze on cost of living is on. And in a sign that workers can expect this to continue, the latest inflation report showed CIPH rose again in the year to August to 2.9%.

Squeeze on cost of living tightens as inflation hits 2.9%

The Resolution Foundation has more analysis of the figures. Based on forecasts by the Office for Budget Responsibility, it suggests the earnings growth won’t recover until “well into the next decade”. It also says that the “pay squeeze is being felt across the economy” with public sector workers hit the hardest as a result of the 1% cap in pay rises. Their graph shows public sector workers are losing out on £1000 a year from the peak.

In reaction to the report, the Guardian’s business live blog quotes Jeremy Cook, chief economist at WorldFirst, who said: “there are more people in work than there have been for over 40 years, yet those people are only getting poorer due to wages that can’t keep up with inflation.” He points to various reasons for the poor wage growth figures including: “low productivity, Brexit fears over the future of individual sectors’ trade relationships and margins cut by higher import costs have all been referenced by companies large and small so far in 2017.”

Higher import costs was highlighted as one of the main contributors to rising inflation in yesterday’s report. We have not left the EU yet but it seems clear that we are already experiencing negative consequences of the vote to leave from the ensuing fall in value of the pound.

Fall in pound doing more harm than good as UK trade deficit widens

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