Yahoo Finance Why are wages lagging so far behind inflation in the UK?
Britons saw their basic pay fall again in June due to soaring prices and more pain is in store for UK households as inflation is set to hit further eye-watering peaks later this year.
The Office for National Statistics (ONS) said regular wages excluding bonuses plunged by 3 per cent in June when taking Consumer Prices Index (CPI) inflation into account.
Wages increased in cash terms but have been dwarfed by soaring costs for gas, electricity, fuel, food and other goods, which have pushed the overall inflation rate to 10.1 per cent.
Private sector workers saw their pay rise 5.9 per cent before inflation – more than three times as fast as their counterparts in the public sector, who received a 1.8 per cent increase.
The figures set the government on course for further clashes with public servants including nurses, doctors, lawyers and teachers who have seen the value of their incomes collapse this year, adding to the pain of a decade of falling real wages.
If wages are still rising, why is pay lagging so far behind inflation?
Big increases in pay are still not proving enough to offset the steep hikes in the cost of living. June’s drop in real wages comes off the back of a surge in inflation this summer.
Inflation jumped to a 40-year high of 10.1 per cent in August and was quickly followed by regulator Ofgem hiking the energy price cap again by 80 per cent for the average household at the start of the month.
And the bad news keeps coming for household finances, as inflation is expected to sail even further when the next cap is announced in November.
Why is public sector pay more affected than the private sector?
The latest figures show that average total pay was up just 1.8 per cent n the public sector in the three months to June, whereas wages leapt 5.9 per cent higher in the private sector as the cost of living crisis saw the gulf between the two widen further.
Employees in the private sector are able to demand big bonus handouts to help them offset the cost crunch, but this is not something public sector workers are able to command.
What is the government doing to help ease the pressure on wages?
The government launched a further £21 billion support package for households to help tackle the mounting cost of living crisis earlier this year, including a £400 discount on gas and electricity bills for every home.
In terms of direct help on wages for those on the lowest incomes, it has raised the National Living Wage to £9.18 an hour for workers aged 21-22, £9.50 for the over-23s and £4.81 for apprentices.
But there are calls for more to be done now that Liz Truss has been chosen as Britain’s new prime minister and public sector workers are becoming increasingly disgruntled at their drop in real pay.
Can the Bank of England help?
The Bank has been flagging concerns over a so-called wage-price spiral in the UK as firms have been hiking pay across sectors and nationwide in response to hiring shortages and as employees begin to demand more pay in the face of surging inflation.
It has increased interest rates from 0.1 per cent to 1.75 per cent since last December to help tackle inflation while, controversially, Bank governor Andrew Bailey urged workers not to demand pay rises to help keep a lid on costs, which saw him come under heavy fire.
Where will wages go from here?
Experts believe the jobs market will start to falter as the cost crisis sees consumers cut their spending, with the Bank forecasting a rise in the unemployment rate to around 5.5 per cent on the horizon.
It is expected that, facing steep price rises themselves and weaker trading, firms will be forced to slow hiring and rein in pay rises for staff.
