Real pay levels fall by a record annual 2.8% - but labour market remains robust

The Office for National Statistics today revealed that real pay is falling faster than at any point since records began. Growth in employees' average total pay (including bonuses) was 6.2% and growth in regular pay (excluding bonuses) was 4.3% in March to May 2022 – but inflation is racing ahead. This means in real terms (adjusted for inflation), over the year, total pay fell by 0.9% and regular pay fell by 2.8%.

The data also showed a fall in the unemployment rate to 3.8% in the March to May quarter, 0.1 percentage points lower than the previous three-month period, and 0.2 percentage points below pre-coronavirus pandemic levels. The number of job vacancies in April to June 2022 was 1,294,000.

There was a corresponding increase in the employment rate, which was estimated at 75.9% - 0.4 percentage points higher than the previous three-month period but 0.7 percentage points lower than before the coronavirus pandemic.

The economic inactivity rate also fell, particularly among those that said they did not want a job: it was estimated at 21.1%, 0.4 percentage points lower than the previous three-month period, but 0.9 percentage points higher than before the coronavirus pandemic.

Adrian Lowery, financial analyst at investing and coaching platform Bestinvest, commented:

“With the ONS’s favoured inflation measure CPIH averaging 7.3% in the March to May quarter, workers are on average seeing real pay fall by a record annual rate of 2.8%. This will be felt by households who are seeing sharp drops in their spending power and is heating up pay demands in both private and public sectors this summer.

“While such high levels of inflation will be temporary, those price rises will not reverse so if pay increases do not keep pace, then in the medium term a standard of living hit will be felt. If there is any consolation however, then it is that the labour market looks robust with employment continuing to rise and employers making jobs available, and that indicates we are not yet on the verge of recession.

“The unemployment rate in the UK averaged 6.8% from 1971 until 2022, with an all-time high of 11.9% in April of 1984 and a record low of 3.4% in December of 1973 – so historically the jobs market looks in good shape.

“It is encouraging to see the number of ‘economically inactive’ working-age adults fall but the number is still high after surging during and after the pandemic.

“Some are carers for elderly and ill family members, some are people with a working spouse who after Covid decided to forego paid work, run the home and care for children (which many would argue are not “economically inactive” occupations). Many older workers decided during and after the pandemic to cease paid work before state pension age. And there has been a rise - about a fifth in the last two years – in numbers declaring themselves too ill to work.

“This is partly why some employers are struggling to fill positions. There is either a skills gap or a motivation gap or both: in that despite the existence of vacancies, the available unemployed workforce is either unsuited to the work available, or reluctant to take it up.”