Poorest households could see cost of living jump by 10% in the autumn

The poorest households could see their cost of living jump by as much as 10% by this autumn, the Resolution Foundation think-tank has warned.

Office for National Statistics (ONS) figures show that the unemployment rate fell 0.2 percentage points between November and January to 3.9%. Meanwhile, the number of UK workers on payrolls rose by 275,000 between January and February, hitting a record 29.7m, while vacancies also climbed to a new high of 1.3m on the back of a 105,000 quarter-on-quarter increase.

While growth in average total pay including bonuses was 4.8% in the quarter to January, regular pay increases were lower at 3.8%. Analysis shows that as the increase in regular pay did not keep up with inflation, wages fell by 1% in real terms – the steepest decline since July 2014.

Resolution Foundation says that the overall size of the workforce is still below pre-pandemic levels, with older male workers leaving the labour market driving economic inactivity up to 21.3 per cent. This rise in economic inactivity shows there may be limited road left in terms of boosting employment, says the Foundation.

The picture on pay is more mixed, with typical nominal pay for payrolled employees falling in the month of February, while the wider measure of average earnings showed nominal pay growth strengthening somewhat in January.

Annual RTI nominal monthly pay growth in January is strongest among high earners (up 6.5 per cent at the 99th percentile, compared to 0.6 per cent at the 10th percentile). These pay trends help to explain the UK’s revenue-rich recovery, but also means real wages will fall fastest for those who can least afford it. The National Living Wage rises 6.6 per cent in April, but prices will probably be rising faster at that point.

Indeed, the Foundation adds that with inflation forecast to hit least 8 per cent in the spring – and with a second spike due in the autumn – real wages will soon be falling throughout the economy. The UK’s ongoing real wage squeeze will get deeper over the course of 2022, with a return to real wage growth not likely before mid-2023.

Nye Cominetti, Senior Economist at the Resolution Foundation, said “The UK labour market continued to strengthen in early 2022, with unemployment falling to 3.9 per cent in the three months to January, nearing a record low. The huge increase in older workers exiting the labour market suggests we may be reaching the limits of Britain’s jobs recovery.”

“The picture on pay is more mixed, with wages rising fastest in high paying sectors like finance and among high earners.

“But overall surging inflation will wipe out any wage gains in 2022. Britain’s real pay squeeze, which started as far back as summer 2021, will get deeper in 2022, and is unlikely to end until summer 2023.”

Resolution Foundation Research Director James Smith said: “The chances of a living standards recovery this year are receding as rapidly as inflation is rising, and the risk of another recession is looming into view.”

“Looking ahead to next week’s spring statement, Chancellor Rishi Sunak will therefore need to make some tough, and potentially expensive, choices in how to respond.”