Wage growth rises as inflation set to drop with ‘silver lining’ for pension savers | Personal Finance | Finance
The Office of National Statistics’ latest labour market data has shown UK pay increased by 6.4 percent between September to November 2022. However, in real terms adjusted for inflation, total and regular pay both fell by 2.6 percent over the year.
The unemployment rate for September to November 2022 also reflected an increase of 0.2 percentage points in the quarter to 3.7 percent.
Mark Futcher, Partner & Head of DC at Barnett Waddingham, comments: “Wage growth is rising, which the Bank of England expects to continue even as inflation comes down from its peak in the coming months. A silver lining here is that as wages rise, so too do pension contributions from both employees and employers.
“While many people have leant on their savings to keep up with the rising cost-of-living, there should be some relief that their often-unconsidered pension pot is rising without them noticing.
“Of course, we cannot expect people to be much heartened by better long-term savings when their short-term is still struggling. Inflation remains much higher than wage growth, so people are faced with a real-term rise in costs of bills, food, and fuel. This is leading to concerning financial decisions, including more people spending on their credit card, cutting back on their private pension, and even pausing their workplace pension contributions.”
Alice Haine, personal finance analyst at Bestinvest, said: “While the economy grew by a surprise 0.1 percent in November, raising hopes that the dreaded recession might be avoided, the double hit of persistently high inflation and rising interest rates will take their toll on households and businesses at some point.”
Ms Haine said this could mean “a downturn is still very likely”, albeit a “shallower” one that starts a little later than expected.
She continued: “For now, however, it seems employers remain intent on retaining workers. Pay growth stayed strong with regular pay, excluding bonuses, and total pay, including bonuses, both rising 6.4 percent in the three months to November – though this was deeply negative in real terms once inflation of 10.7 percent is factored in.
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“This means real wages dropped 2.6 percent in the three months to October for real and total pay – one of the largest falls since comparable records began.”
Ms Haine added: “Yet again, the purchasing power of Britain’s workers is taking a pummelling meaning income simply doesn’t stretch as far.
“Not a huge surprise when you consider the many blows to worker pay from the soaring cost of goods and services to rising mortgage and debt repayments and the highest tax burden since the 1940s.”
With the pay squeeze intensifying, typical households are likely to be £2,100 worse off by April 2024, according to the Resolution Foundation.
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Alice Haine, personal finance analyst at Bestinvest, said: “While the economy grew by a surprise 0.1 percent in November, raising hopes that the dreaded recession might be avoided, the double hit of persistently high inflation and rising interest rates will take their toll on households and businesses at some point.”
Ms Haine said this could mean “a downturn is still very likely”, albeit a “shallower” one that starts a little later than expected.
She continued: “For now, however, it seems employers remain intent on retaining workers. Pay growth stayed strong with regular pay, excluding bonuses, and total pay, including bonuses, both rising 6.4 percent in the three months to November – though this was deeply negative in real terms once inflation of 10.7 percent is factored in.
Commenting on the statistics, Myron Jobson, senior personal finance analyst at interactive investor, said: “The gulf between the pay rises being handed to public sector workers, and those in the private sector remains sizeable, but it is not as large as previous months.”
Stats show average regular pay growth for the private sector was 7.2 percent while the public sector reflected a growth rate of 3.3 percent.
Mr Jobson continued: “The disparity in pay is likely attributed to private sector employers offering stronger bonuses to attract and retain talent in the tightest labour market in years.”
