Private sector pay growth at its weakest since start of the decade with inflation set to climb 

Pay growth in the private sector fell to 2.9 per cent on a cash basis in the three months to July, its joint lowest rate since October 2020, with wages set to shrink significantly in the second half of the year as inflation rises, the Resolution Foundation said today (Tuesday) in response to the latest ONS statistics.

The latest ONS data showed another big gap between the strength of nominal regular pay growth in the public and private sectors – 6.3 and 2.9 per cent respectively, with strong public sector pay growth driven by the timing of NHS pay settlements.

The timing of these settlements has also bumped up the rate of total earning growth across the economy to 3.9 per cent – handing pensioners a big boost to the state pension of around £9.41 a week to £250.71 next Spring as a result of the triple lock. Working-age benefits are set to rise by the far lower level of CPI inflation in September, currently forecast to be 3 per cent.

There was no such boost for workers in the private sector, however, with average weekly earnings now £2 lower in real terms than they were last October. With nominal wage growth weakening and inflation set to rise across the second half of the year, the UK’s private sector pay squeeze will tighten in the coming months.

The unemployment rate held steady at 4.9 per cent, but other indicators – notably falling payrolled jobs and vacancies – continue to suggest a weakening labour market, with the situation especially tough for young people looking to make their first starts.

Julia Diniz, Economist at the Resolution Foundation, said:

“The big winners from today’s ONS data are pensioners, who are set for another large rise in the state pension next spring thanks to the triple lock.

“The biggest losers are workers in the private sector who are already earning less than they were last autumn. With wage growth slumping to its lowest rate in nearly six years, the UK’s private sector pay squeeze will tighten over the coming months as inflation rises.

“With unemployment settling at around five per cent and the number of job vacancies continuing to fall, conditions are also tough for those looking for work, especially young people.”