Inflation has fallen to the Bank of England’s 2% target, its lowest rate for nearly three years, as the median basic pay award in the three months to the end of May 2024 increased to 4.6%, slightly higher than the revised figure of 4.5% for the previous rolling quarter.
The consumer prices index (CPI) for the year to May 2024 was 2.0%, down from 2.3% the previous month, according to the Office for National Statistics.
Meanwhile, according to fresh data from Brightmine, formerly XpertHR, median pay increases have now remained below 5% for four consecutive rolling quarters and are expected to remain so for the rest of the year.
Last week, the ONS announced that annual growth in regular earnings (excluding bonuses) in April was 6.0%, the same as for the previous three-month period.
Pay awards May 2024
Pay awards and inflation continue to diverge
Inflation measured by CPIH, which also includes owner-occupier housing costs, stood at 2.8% in the 12 months to May 2024 (down from 3.0% in April).
The retail prices index (RPI), the inflation measure cited by trade unions in pay negotiations, fell from 3.3% in the year to April to 3.0% in the year to May.
High inflation levels drove record pay settlements in 2023, but with inflation falling, pay awards are also showing a downward trend.
In a matched sample, 53% of employee groups monitored by Brightmine received a pay settlement worth less than their pay rise in 2023.
Sheila Attwood, Brightmine senior content manager, data and HR insights, said: “As we head further into the year, we can see that settlement levels are sitting firmly below 5%, a level we now expect them to sit at through to the end of the year.
“Employers have reacted to lower inflation by bringing down the level of settlements compared with last year, but are keeping pay rises comfortably above inflation while employees continue to feel cost-of-living pressures.”
Based on 132 pay settlements that came into effect in the three months between 1 March and 31 May 2024, covering more than half a million employees, Brightmine found little variability.
The middle 50% of pay awards are close in value, at 4% for the lower quartile and 5.3% for the upper quartile. In contrast, in 2023 when Brightmine recorded the highest pay awards for 30 years, it was common to see a range of around three percentage points.
The median manufacturing sector award stood at 4.5% between March and May 2024, compared with 4.9% for the services sector. This is distinct from the first three consecutive rolling quarters of 2024, where manufacturing stood close to one percentage point higher than the services sector.
For 28% of employee groups, pay settlements increased in value. However, Brightmine said these tended to be for those who saw increases in line with the national living wage, which increased by 9.8% in April.
Cost-of-housing squeeze
Rebecca Florisson, principal analyst for the Work Foundation at Lancaster University, said: “For the first time in nearly three years, inflation has hit the Bank of England’s 2% inflation target. But this shouldn’t fool the next government, workers are still facing much higher prices for their daily essentials than they were a few years ago.
“As the rate of inflation falls, the good news is the wage recovery is continuing. Workers now have more money in their pockets than they did last year with real nominal wage growth of 2.3% on the year.
“But the bad news is that most people are feeling poorer than when they voted in the last general election nearly five years ago. This is the first Parliament since 1955 where living standards have declined – attributable to wage stagnation alongside wider impacts of the Covid-19 pandemic, war in Ukraine and political choices.
To further ease inflationary pressures and grow the economy, whoever wins the next election must urgently address the dire labour market situation” – Carsten Jung, IPPR
“And for many workers, the cost of living crisis is not over yet. Interest rates remain at their highest level for 16 years at 5.25%, which is creating a cost-of-housing squeeze for many private renters and mortgage holders – with low-paid and insecure workers hit hardest.”
TUC general secretary Paul Nowak said: “Over the last three years, UK families have suffered the highest price rises in the G7 – with inflation going up more over that period than it usually does over an entire decade. Ministers can try to rewrite history all they like. But the Conservatives have presided over the worst period for living standards in modern times.
“Food and energy bills have surged. Rents and mortgages have skyrocketed. And real wages are still worth less than in 2008. Working people have paid the price for this government’s failure with household debt also increasing at record levels. We can’t go on like this. We need a government that will make work pay.”
Martin Sartorius, principal economist for the CBI, said: “Today’s data sets the stage for the Monetary Policy Committee to cut interest rates in August, in line with our latest forecast’s expectations.
“However, rate-setters will still need to weigh the fall in headline inflation against signs that domestic price pressures, such as elevated pay growth, are proving slower to come down. This means that they are likely to move cautiously beyond August to avoid putting further upward pressure on inflation, especially as the growth outlook improves at home and geopolitical tensions remain heightened.”
Carsten Jung, senior economist at the Institute for Public Policy Research (IPPR), said: “Inflation temporarily falling to target is good news. It should prompt the Bank of England to start easing financial pressure by bringing down interest rates this week. Falling inflation expectations by households and a cooling labour market suggest that the current inflation fight could be in its last round.
“To further ease inflationary pressures and grow the economy, whoever wins the next election must urgently address the dire labour market situation, where a record number of people have left the labour force, often due to illness. Moreover, only huge investments in the clean energy transition can shield us from future inflation shocks from international oil and gas markets.”
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