The latest analysis shows that the average worker is only £3.80 per week better off compared to a year ago. This marginal increase has been overshadowed by a surge in living costs, effectively nullifying the gains from higher wages, according to the Resolution Foundation.
Official data indicates that the UK’s unemployment rate has climbed to its highest level since 2016, reaching 5.1% in the three months leading to October, up from 5% in September, as reported by the Office for National Statistics. Reports suggest that employers refrained from hiring new staff before the recent Budget, with critics attributing subdued demand for workers to a national insurance hike.
Despite the slowdown in wage growth, there is a glimmer of hope as the decline in job vacancies seems to have stabilized, hinting at a possible resurgence in hiring. Real wage growth, accounting for inflation, edged up by a mere 0.5% in the three months to October, with average weekly earnings rising by a meager £3.80 in real terms over the past year, an amount described as barely enough to cover the cost of a cup of coffee by the Resolution Foundation.
The impact of the 2008 financial crisis is still lingering, with millions of workers experiencing a prolonged period of wage stagnation. The Foundation highlighted that inflation exceeded nominal wage growth from 2008 to 2014 and even when real wage growth resumed, it was sluggish, disrupted by events like the Brexit vote and the COVID-19 pandemic. Projections suggest that wage growth is expected to remain subdued, with wages forecasted to increase by a modest 2% by 2031.
Before adjusting for inflation, wage growth decelerated to 4.6% in the three months to October, signaling a need for potential interest rate cuts by the Bank of England. The latest data also revealed a significant drop of 38,000 employees on payrolls in November, the most substantial decline in five years, reflecting a weakened job market.
Younger workers faced challenges in securing employment opportunities, with a notable 85,000 increase in unemployed individuals aged 18 to 24 during the three months to October, the sharpest rise since November 2022. The ONS director of economic statistics, Liz McKeown, emphasized the ongoing weakening of the labor market, characterized by a reduction in payroll numbers and a rise in unemployment, particularly among younger age groups.
TUC General Secretary Paul Nowak stressed the importance of stimulating demand to address rising unemployment and slowing wage growth. Advocating for an interest rate cut by the Bank of England, Nowak emphasized the necessity of supporting the economy to facilitate investment and consumer spending. Additionally, he highlighted the need to provide essential assistance to individuals out of work due to the enduring effects of the economic downturn.