Inflation fell more than many economists had expected, with the consumer prices index (CPI) recording a 7.9% increase over the year to June 2023, only a few percentage points higher than regular wage growth.
The Office for National Statistics said that falling fuel prices contributed to the drop – down from 8.7% in May – while food prices were rising less quickly than a year ago.
The most recent labour market data from the ONS showed that growth in employees’ regular pay was 7.3% – the highest growth rate on record.
The consumer prices index including owner-occupiers’ housing costs (CPIH) rose by 7.3%, down from 7.9% in May. But the retail prices index, not an official statistic but the measure of inflation cited by trade unions, stood at 10.7%, down from 11.3% the previous month.
The latest data from XpertHR shows that pay awards in the second quarter of the year (three months to the end of June 2023) were worth a median 6%.
Sheila Attwood, XpertHR senior content manager, data and HR insights, said: “This month’s data serves as a stark reminder of how long employees have been struggling with the gulf between pay and the rising cost of living. While pay awards are at their highest level since 1991, they continue to be outpaced by the UK’s high rate of inflation.
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“The prevailing view among economic analysts is that inflation will ease back during the remainder of the year, although there is far from unanimity as to how fast, and to what level.”
Chancellor Jeremy Hunt said: “Inflation is falling and stands at its lowest level since last March, but we aren’t complacent and know that high prices are still a huge worry for families and businesses.
“The best and only way we can ease this pressure and get our economy growing again is by sticking to the plan to halve inflation this year.”
James Smith, research director at the Resolution Foundation, said: “Today’s chunky inflation rate fall – the joint second largest this century – offers some unambiguously good news after months of disappointing data on the state of the economy.
“The scale of the fall will ease pressure on mortgages and wages, with the Bank of England less likely to keep interest rates higher for longer, and Britain’s latest 18-month pay squeeze is coming to an end.
“The UK still has one of the highest inflation rates of any advanced economy, but after today it merely looks bad rather than a basket case. That is a very welcome improvement.”
Ben Harrison, director of the Work Foundation at Lancaster University, said: “While it is positive to see inflation falling, it remains stuck above 7% for the 16th consecutive month.
“This is prolonging the living standards squeeze that has been a particular disaster for the 6.2 million people in severely insecure work. While we have seen above inflation pay rises for finance workers, sectors such as retail and hospitality – where many insecure workers are employed – are lagging behind.”
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XpertHR found that the median pay award for the public sector in the year to June 2023 was 4.5%, lower than private sector’s 6%. These figures compared to 3% in the public sector the previous year, and 3.5% in the private sector. Three-quarters of pay settlements are higher than 12 months ago, around one in six are lower (15%) and 9% were pitched at exactly the same level in both years. Just 3% of pay settlements resulted in a pay freeze.
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