UK workers are being warned of a significant impact on their finances as inflation rises for the first time this year, threatening an average real-terms pay cut of approximately £789. The latest data reveals that overall prices increased by 2.2% in the year leading up to July, up from 2% in June, surpassing the Bank of England‘s target and causing concern for employees across the country.
Inflation Increase Predicted, But Still Concerning
The recent inflation spike, while widely anticipated, is primarily attributed to energy prices falling by less than they did in 2023. Despite this, the Bank of England has cautioned that inflation could continue to rise later in the year before eventually declining again.
For UK workers, this 2.2% increase in prices is more than just a statistic—it represents a tangible decrease in purchasing power. With the average UK salary before tax at £35,880, the inflation rate could see the average employee £789.36 worse off if these price increases persist throughout the year.
Wage Growth Outpaces Inflation, But for How Long?
There is a silver lining, however. Data from the Office for National Statistics (ONS) indicated that wage growth outpaced inflation in the three months leading up to May 2024. This means that, at least for now, workers have seen their wages increase faster than the cost of living. However, with inflation on the rise again, the question remains—how long can this trend continue?
Grant Fitzner, ONS Chief Economist, commented on the situation, saying, “Inflation ticked up a little in July as although domestic energy costs fell, they fell by less than a year ago. This was partially offset by hotel costs, which fell in July after strong growth in June.”
Historical Context and Future Outlook
It’s worth remembering that inflation in the UK reached a staggering 11.1% in October 2022, the highest level in 41 years. While the current rate is significantly lower, the upward trend could signal the beginning of another challenging period for UK workers. The Bank of England is expected to take July’s inflation data into account when it next reviews interest rates in September. Any changes in interest rates could further impact the cost of living, potentially exacerbating the financial strain on households.
As the United Kingdom grapples with renewed inflationary pressures, workers are urged to prepare for potential real-terms pay cuts, with the average employee potentially losing nearly £800 in purchasing power. While wage growth has so far outpaced inflation, the future remains uncertain, and further increases in the cost of living could strain finances even more.
The Workers Union says…
“In these uncertain times, it is crucial for UK workers to stay informed and vigilant about the economic factors that affect their financial wellbeing. The Workers Union remains committed to supporting our members as they navigate these challenges.”
