Pay packets across Britain are shrinking for the third time in decade

Real wages officially began to fall in November, and the current period of shrinking pay packets is likely to get worse before it starts to ease in the second half of 2022, the Resolution Foundation said today (Tuesday) in response to the latest ONS labour market statistics.

Real regular average weekly earnings wages fell by 1 per cent in November off the back of rising inflation (CPI rose to 4.6 per cent) and falling nominal wage growth (down to 3.5 per cent). Resolution analysis of short (three-month) changes in pay finds that real wages actually started falling as far back as June 2021.

This latest wage squeeze – the third in a decade following real wage falls after the financial crisis (2011-2014) and EU referendum (2017) – is likely to get deeper in the coming months with inflation forecast to peak at six per cent in April, before it starts to ease in the second half of 2022.

This latest fall in real wages will deepen Britain’s cost of living crunch, warns the Foundation.

The jobs market however is in good health, and continues to tighten. Unemployment fell back close to pre-crisis levels of 4.1 per cent in the three months to November, while payrolled employment rose by 184,000 in December.

The Foundation says that Britain is likely to emerge from Omicron with a tough outlook for wages and a longer-term challenge of lower labour market participation – down 1.1 percentage points, equivalent to 615,000 fewer workers, on pre-crisis levels. Tackling both of these challenges will be critical in 2022.

Hannah Slaughter, Senior Economist at the Resolution Foundation, said:

“Despite widespread talk of returning wage spirals, Britain is instead experiencing the return of shrinking pay packets. The latest period of falling real wages – the third in a decade – is likely to have started as a far back as last Summer, and is likely to continue beyond next Summer too.

“But while falling wages will add to the pressure on Britain’s cost of living crunch, the jobs market is in good health, with unemployment falling and employment rising late last year – a remarkable success given the damage inflicted by the pandemic.

“The big picture is that Britain will emerge from the pandemic with pay packets shrinking, and over half a million fewer people in the labour market. Both of these challenges will need to be addressed in 2022.”