UK Real Wage falls confirm again that we are in stagflation territory.

by Shaun Richards

Today we have been brought up to date with the state of play in the UK labour market and let us start with the issue of wages. In isolation the position looks strong.

Growth in average total pay (including bonuses) was 6.0% and growth in regular pay (excluding bonuses) was 5.7% among employees in July to September 2022; this is the strongest growth in regular pay seen outside of the coronavirus (COVID-19) pandemic period.

So pay growth is at approximately 6% which is strong for the UK and is mostly being driven by regular pay. That seems logical as it is hard to think of areas at a time like this that would be seeing surging bonuses. The last part if disappointing on two counts. Firstly the wages figures over the pandemic were a nonsense ( for newer readers I reported them to the Office for Statistics Responsibility). Secondly regular wages must have grown faster in the past but the official series only goes back to 2001. They should make that clear.

As we look to break the numbers down we can see why the public-sector is facing potential strike action.

Average regular pay growth for the private sector was 6.6% in July to September 2022, and 2.2% for the public sector; outside of the height of the pandemic period, this is the largest growth seen for the private sector and the largest difference between the private sector and public sector.

The best performing areas are further broken down below.

The wholesaling, retailing, hotels and restaurants sector saw the largest regular growth rate at 7.3%, followed by the finance and business services sector at 6.2%.

Although a little care is needed due to the fact we have not completely escaped the impact of the furlough schemes on wages.

The wholesaling, retailing, hotels and restaurants sector includes the accommodation and food industry, which had the highest proportion of employees on furlough during July to September 2021. Therefore, the growth rate of 6.3% for accommodation and food may still have a minimal base effect.

I note also that the finance sector continues to do well and that seems to be something of an ongoing theme. When I spoke at the Royal Statistical Society in the summer I recall Jonathan Portes pointing out that post pandemic it was the banking sector which was doing best in wages terms. Also there may be a flicker of hope from the latest monthly figures for the private-sector which have gone, 6.6%, 6,8% and now 7%.

Real Pay

The problem with all of this is simply the issue that even such levels of growth have fallen well behind inflation. Let me welcome an improvement of the analysis of the Office for National Statistics which this time around has given us numbers based on the CPI inflation measure as well as the woeful and widely ignored CPIH.

Using CPI real earnings, in July to September 2022, total pay fell by 3.7% on the year, a larger fall on the year was last seen in February to April 2009 when it fell by 4.5%. Regular pay fell by 3.8% on the year. This is slightly smaller than the record fall we saw in April to June 2022 (4.1%) but still remains among the largest falls we have seen since comparable records began in 2001.

So we have a comparison with the numbers we looked at for the Euro area on the 9th of this month.

So wage growth is lagging inflation by around 5% ( literally 5.5% but I think that is spurious accuracy).

We do not have exactly the same time periods but we seem to be doing slightly better. My caveat here is that I think that the CPI inflation number is too low due to the way that it is under recording the rise in energy bills.


This is a mixed picture which starts well.

The most timely estimate of payrolled employees for October 2022 shows another monthly increase, up 74,000 on the revised September 2022 figures, to a record 29.8 million.

The issue is that it excludes the self-employed.

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However for the formal series for the quarter to September employment fell marginally ( 52,000)

The UK employment rate was estimated at 75.5%, largely unchanged compared with the previous three-month period and 1.1 percentage points lower than before the pandemic (December 2019 to February 2020).


So we end with a reminder that this number has never returned to the previous high which reinforces the message from hours worked.

However, compared with the previous three-month period, total actual weekly hours worked decreased by 4.2 million hours to 1.04 billion hours in July to September 2022. This is still 13.3 million hours below pre-coronavirus pandemic levels (December 2019 to February 2020).

In fact it is us men who need to sharpen up as the numbers for women have regained the past peak.

The decrease in the latest three-month period was largely driven by women, although the level for women remains above pre-pandemic levels. Meanwhile, total actual weekly hours worked by men also decreased, and the level remains below pre-pandemic levels.


Regular readers will know that I have downgraded this as a useful measure. This is because it has been under fire for a very long time ( Yes Minister tells us nobody believes the unemployment figures in 1983). My recent issue is the way we are getting record lows at a time when economies are struggling. For the record we are slightly worse than last month.

The UK unemployment rate was estimated at 3.6%, which is 0.2 percentage points lower than the previous three-month period and 0.4 percentage points below pre-pandemic levels.


This is an area on the move and not in a good way.

The UK economic inactivity rate was estimated at 21.6%, which is 0.2 percentage points higher than the previous three-month period and 1.4 percentage points higher than before the pandemic.

Maybe there is still a bit of a student based influence.

Although economic inactivity increased across all age groups in the latest three-month period (July to September 2022), those aged 16 to 24 years and those aged 35 to 49 years drove the increase in inactivity, while those aged 50 to 64 years saw the smallest increase since July to September 2020.

In fact the ONS are wondering this as well.

During the latest period, the number of economically inactive students measured prior to seasonal adjustment showed a decrease, but this was a much smaller decrease than is typically seen at this time of year.

There definitely does seem to be a sickness issue.

During the latest three-month period, those who were economically inactive because of long-term sickness increased to a record high and drove the increase in economic inactivity in July to September 2022.


As you can see this is something of a mixed report. Wages growth would be really good but for that pesky inflation rate! The truth is that we are seeing something of a depression in real wages as I have no confidence in the official figures over the pandemic meaning we never got back to pre credit crunch levels and now they are singing along with Alicia Keys.

Oh, babyI, I, I, I’m fallin’I, I, I, I’m fallin’Fall, fall, fall (sing)Fall

Employment and hours worked were very strong post credit crunch so it is less of a concern they have not made up the post pandemic lost ground. But really what we are seeing is the stagflation that we both feared and expected and the central banks denied.


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