Average weekly earnings compared to the cost of living fell for the first time since July 2020, according to the Office for National Statistics.
Between September and November, wages rose at an annual rate of 3.8% excluding bonuses, but adjusted for inflation and excluding bonuses, fell by 1%, the ONS said. Including bonuses, growth in average pay was 4.2%.
The rate of inflation rose to 5.1% in the year to November and could reach 6% in the coming months, according to economists. For workers, this means that predicted pay rises of 2% to 3% are likely to be erased by a higher cost of living.
The unemployment rate fell to 4.1% in the three months to November, the ONS added, bringing it closer to levels seen before the pandemic.
The redundancy rate dropped to a record low, despite predictions that ending the government’s furlough scheme would lead to extensive job losses.
Companies added 184,000 people to their payrolls in November, and the UK employment rate was estimated at 75.5% – just 1.1 percentage points lower than December 2019, before the impact of the pandemic.
Pay and inflation
Neil Carberry, chief executive of the Recruitment and Employment Confederation, said the strength of the market was “remarkable by any historic comparison”. He attributed the uptick in employment to a rise in temporary and part-time work in a changing economy.
“The big issue now is capacity constraint – there are hundreds of thousands fewer workers in the labour market than before the pandemic.
“Over time, that will affect the economy’s ability to drive prosperity. Firms need to be looking at new approaches to developing their workforce, while government needs to work with businesses on the skills and job matching support necessary to address rising economic inactivity.”
The TUC welcomed the rise in employment but urged ministers to “get pay packets rising across the economy”.
General secretary Frances O’Grady said: “Working people deserve a decent standard of living and a wage they can raise a family on. But instead, following the worst pay squeeze for two centuries, real pay is falling, and they now face a cost-of-living crisis.
“We urgently need to get pay packets rising across the economy – or too many families will have to choose between paying soaring bills or putting food on the table.
“Ministers must give unions more power to go into workplaces and negotiate better pay and conditions, give our public sector workers a decent pay rise, and get the minimum wage up to £10 an hour immediately.”
Hannah Slaughter, senior economist at the Resolution Foundation think tank, agreed: “Despite widespread talk of returning wage spirals, Britain is instead experiencing the return of shrinking pay packets,” she said.
“The latest period of falling real wages – the third in a decade – is likely to have started as far back as last summer, and is likely to continue beyond next summer too.
“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.” – Hannah Slaughter, Resolution Foundation
“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.”
A survey of HR professionals by Totaljobs earlier this week found that the majority felt inflation would have a more severe impact on the labour market this year than skills shortages or the pandemic.
Helen Barnard, research and policy director at Pro Bono Economics, warned that the promising indicators masked “increasing signs that the recovery is losing pace”.
She said: “Rising numbers of people out of the labour market because of ill health is undermining the UK’s recovery, especially in places most in need of levelling up.”
She pointed to the fact that the ONS figures show economic inactivity at 21.3%, reaching as high as 25.1% in the north east of England.
“This is being driven by higher rates of long-term illness, meaning there will be no quick fix – sustained and tailored support will be needed to turn this trend around,” she added. “Charities disproportionately support people further from the labour market into jobs and will be vital in delivering this support.”