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The Actuary The magazine of the Institute & Faculty of Actuaries

UK real pay growth hits a two-year low

Despite UK employment reaching a record high of 74.6% in the three months to December last year, real pay growth fell to its lowest level since January 2015, according to figures by the Office of National Statistics released today.

Britain is set for a fresh pay squeeze later this year ©iStock
Britain is set for a fresh pay squeeze later this year ©iStock

Although earnings rose by 2.6% in the last quarter, the consumer price inflation rate averaged at 1.2%, resulting in real wages growth of 1.4%, the lowest it has been in almost two years.

After it was reported yesterday that inflation hit its highest level since 2014 last month, the Resolution Foundation are now forecasting real pay growth to fall to around 1% this March, less than half the pre-crisis average of 2.2%.

Their senior policy analyst, Laura Gardiner, said: “Today’s figures show the jobs market remains robust, with employment reaching a new record high and inactivity starting to fall again.

“However, the encouraging news on jobs isn’t feeding through into earnings, which have shown no sign of responding to fast-rising inflation. Unless this changes, Britain is set for a fresh pay squeeze later this year.”

Real average weekly earnings growth since 2001 is shown below:

Source: Resolution Foundation

These figures come as a report from the Joseph Rowntree Foundation (JRF), also released today, reveals that in 2014-15, there were 19 million people living on less than the Minimum Income Standard (MIS).

This marks an increase of four million individuals below the MIS, defined as the income different types of households require to reach a socially acceptable living standard, since 2008-09, with the JRF concluding that growing costs and stagnating wages have driven this rise.

In addition, the foundation’s research shows that there were 11 million people with incomes less than 75% of the MIS and at high risk of poverty, while it forecast that the cost of living could be 10% higher by 2020.

Report co-author, Matt Padley, said: “Our report has shown a steady growth in the number of people with too little income. Unfortunately the conditions to the end of the decade still look unfavourable for these groups.

“With forecasts of rising inflation, slowing wage growth combined with cuts to tax credits, the outlook is set to be highly challenging for families whose low incomes mean they are, at best, only just managing to make ends meet.”