The UK is facing a cost of living crisis, with inflation hitting 6.2 per cent in February 2022, and according to the Office for Budget Responsibility, it could average at 7.4 per cent this year.
However, people’s wages are not going up at the same rate, despite government ministers repeatedly talking about Britain becoming a high-wage economy as recently as last autumn.
For example, in an interview on The Andrew Marr Show, ahead of his speech at the Conservative Party conference, Prime Minister Boris Johnson said, “Finally after all these years you’re seeing growth in wages.
“Wages are finally going up for the low-paid, and they’re going up faster than for those on high incomes. And about time too. Wages have been totally flatlining for more than a decade.”
Despite being challenged about wages going down, not up, in real terms, Mr Johnson stuck with this line throughout the interview, and then in his keynote speech, he said the UK is becoming a “high wage, high skill, high productivity” economy.
What the data says
According to the Office for National Statistics, average earnings did go up in the three months to January by 3.8 per cent, up from 3.7 per cent a month earlier.
However, this rate of increase is well behind the surge in inflation, which is currently at a thirty year high, and means wages fell by one per cent in real terms. That is the biggest real terms fall in wages since 2014.
The Resolution Foundation, meanwhile, predicts that real household income per person, will fall by 2.2 per cent in 2022/23. This would be the biggest fall in a single financial year since records began in 1956/57. Estimates from the body, suggest that the current fall in real wages will not end until at least late 2023, by which time, average wages will be no higher than they were in 2007.
Employers under pressure over wages
The disparity between wage growth and inflation is also leading to some employers being placed under close scrutiny, as hard-pressed workers struggle to make ends meet.
However, employers are not immune to rising costs either, and following the Spring Statement, the CBI urged the government to do more to tackle the current challenges facing firms.
Ministers face a tough balancing act at the moment, as they seek to minimise the impact of rising inflation, while encouraging consumers to spend and businesses to invest, in order to drive growth.