Pay cut for millions as real wages fall by 2.8% – what it means for your money?

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MILLIONS of workers are facing a cut to pay in real terms as inflation outpaces wage growth.

New figures released today by the Office for National Statistics show that wages in “real terms” fell by 2.8% from May to July, meaning less money in peoples’ pockets.

Real term pay has gone down for millions of workers

That’s compared to 3% last month, the ONS said.

A real terms pay cut means even if wages are going up, if they don’t match the rate of inflation, which is currently 10.1%, people will effectively be getting less in their pay packets.

When inflation goes up it means the price of everyday items, fuel and bills go up, which means budgets are squeezed.

Inflation hit a 40-year high in July, up from 9.4% the previous month.

The latest figures from the ONS show average workers’ total pay excluding bonuses went up by 5.2% and for those with bonuses it went up by 5.5%.

Average regular pay grew by 6% in the private sector, while in retail and the hotels and restaurant sector wages went up by 7%.

Meanwhile, wages in the finance and business services sector grew at 5.9% and the construction sector at 5.4%.

The average weekly earnings for regular pay was £571 in July 2022, according to the statistics.

This showed a steady increase in wages over time, the ONS said.

In good news, the number of UK workers on payrolls rose by 71,000 between July and August to 29.7million.

That means the unemployment rate for May to July decreased by 0.2% to 3.6%, the lowest rate since 1974.

The number of jobs available on the market in June to August was 1,266,000.

What does it mean for my money?

Alice Haines, personal finance analyst at Bestinvest, an online investment platform, said the latest real terms wages drop meant peoples’ spending power was “severely compromised”.

“With inflation expected to edge higher on September 14, when the ONS releases the latest reading, how far wages can go in the daily lives of workers will be tested once again,” she said.

She added: “GDP might have risen slightly in July, up 0.2% compared to contraction of 0.6% in June, but that did little to offset the flattening economic growth in the three months to July as the fallout from the war in Ukraine and rising borrowing costs took its toll on the economy.”

Alice said Liz Truss’ plan to freeze energy bills for millions of households across the UK for two years could lead to a “much milder recession” than anticipated.

She added: “The next step is to see what further fiscal measures Kwasi Kwarteng, the new Chancellor of the Exchequer, will unveil in his upcoming ‘mini-budget’ to cut the tax burden and help households handle the cost-of-living crisis.”

What help can I get?

Millions of people have already started receiving, or are in line for direct payments to help them through the cost of living crisis.

The government announced a giant cost of living support package in May. Some households could be in line for £1,200.

The first instalment of the £650 cost of living payment should have been paid to over eight million people already.

The next instalment is coming later in autumn, although a specific date has not yet been set.

The first part of the £400 energy rebate will start hitting peoples’ accounts from next month as well.

Meanwhile, millions will receive a £150 disability cost of living payment from September 20 this month.

There’s also help on offer in the form of the Household Support Fund and the £150 Council Tax Rebate.

The deadline for the Council Tax Rebate is September 30 though, so you have just weeks left to claim the money.

Did you miss our previous article…