Inflation warning as workers urged to save wage increase before rises crush cash

Wage increases may have eased the financial burden for many Britons but pay rises are not keeping up with rising living costs, an expert has warned.

Regular pay excluding bonuses in Great Britain increased 7.3 percent from August to October 2023 compared to the same period a year before.

Average regular earnings increased 7.2 percent for the quarter with earnings growth for the public sector at 6.9 percent. All these pay growth figures beat inflation for the period, which was at 4.7 percent for the year to October.

But Sarah Coles, head of personal finance at Hargreaves Lansdown, warned pay growth is not keeping up with the rising cost of living.

She said: “Wage rises still have an awfully long way to go to make up for the spending power we’ve lost over the past couple of years.

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“They’ve beaten inflation slightly for five months, but they had been growing slower than price rises for a full 18 months. This time last year, total pay was down four percent in a year, and the OBR expects living standards in the coming financial year to be 3.5 percent lower than their pre-pandemic level.”

She also warned the wage increases vary for different sectors. She explained: “These wage rises aren’t smoothly distributed either, with wages in the financial and business sectors up 8.3 percent and manufacturing at 7.4 percent, compared with construction at 5.2 percent.

“It’s also worth bearing in mind that inflation isn’t being felt equally. Food inflation was still running at 10.1 percent in October. The lower your income, the bigger the proportion of it you spend on essentials like food, so the harder this hits. It means lower earners are still struggling disproportionately.”

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Ms Coles urged working Britons to use their extra pay to build up their savings. She said: “If you’re in the fortunate position of having more wiggle room than you had previously, it’s worth taking advantage – and rebuilding your emergency savings while you can.

“Anyone of working age should be working towards three to six months’ worth of essential spending in a competitive easy access account.

“However, if you’re falling a long way short of the goal, don’t panic. You don’t need to do this overnight. Just put aside as much as you can afford, as soon as you can afford to do so, in a competitive easy access savings account, and build whatever you can.”

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The number of payrolled employees for November 2023 was largely unchanged, dropping 13,000 to 30.2 million, compared with the revised October 2023 figure.

Ms Coles said: “The employment picture remained relatively static over the month, with employment, unemployment and inactivity levels staying roughly the same.

“Unfortunately, this is likely to be a pause rather than a plateau. The Office for Budget Responsibility has forecast something of a gathering storm, with unemployment hitting 4.7 percent at the end of next year, five pecent the year after that and 5.1 percent by the last three months of 2026. This isn’t just higher than it previously expected, the rises are expected to go on for longer too.”

Alice Haines, personal finance analyst at Bestinvest, also encouraged people to plan ahead. She said: “With wage growth and the jobs market likely to soften further from here, as more people chase fewer jobs and redundancies rise, lingering economic uncertainty means employers may be hesitant to commit to permanent new hires as they plan budgets for the new year.

“People should prepare their finances for all eventualities, including the possibility of job loss. Building up a robust rainy-day fund is likely to become the most essential New Year’s resolution to commit to at the start of 2024.”

For the latest personal finance news, follow us on Twitter at @ExpressMoney_.

The number of vacancies in the UK fell by 45,000 from September to November 2023 on the quarter.

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