Real Wage Growth Gave Workers A Welcome Income Boost This Summer, And Pensioners Will Get One Next Spring

11th September 2024

Pay growth is weakening as the labour market continues to cool.

But falling inflation means that workers still received a welcome real-terms income boost this summer, while pensioners will get one next spring too, as today's earnings data is set to drive a £460 a year increase in the full rate of the new State Pension via the Triple Lock, the Resolution Foundation said on Tuesday 10 September 2024.

Pay growth has weakened in recent months, with private sector regular pay growing by the equivalent of 5.6 per cent a year over the last three months, down from 6.9 per in the previous three months. The weakening of nominal wage growth should reassure monetary policy makers concerned about the risk of pay rises fuelling inflation.

Falling inflation over this period means that workers still enjoyed healthy real-terms pay rises of around 2.2 per cent - broadly in line with the level of pay growth enjoyed prior to the financial crisis.

The earnings data matters for pensioners too as it is likely to determine how much the State Pension will rise by next April. While the final estimate will be published next month, today’s provisional estimate of 4.0 per cent regular earnings growth across the economy, including bonuses, suggests that the full rate of the new State Pension will rise by £460 to £11,960 a year.

This bumper rise in the State Pension is likely to be around twice the size of the increase in working-age benefits next April, as they are set by CPI inflation in September which, according to the Bank of England, is forecast to be just 2.1 per cent.

There were other signs of the labour market cooling in today’s data beyond weakening wage growth, with vacancy levels falling again and payrolled employment falling by 68,000 in August. Separate data shows that overall employee jobs grew at their slowest rate since 2021 (up 0.2 per cent between Q1 and Q2 2024).

However, the Foundation cautions that it is hard to make firm judgements about the wider state of the UK jobs market given ongoing data quality issues with the headline employment, unemployment and economic inactivity figures.

Louise Murphy, Senior Economist at the Resolution Foundation, said:

"While wage growth continues to weaken, even faster falling inflation over the summer means that workers have enjoyed long overdue real-terms pay rises of 2.2 per cent. This is the kind of healthy wage growth we took for granted before the financial crisis, but haven’t seen since.

“Workers’ income boosting pay rises this summer will also deliver an income boost for pensioners next Spring, as they will drive a £460 increase in the State Pension via the Triple Lock.

“But unless we see a marked increase in productivity, this honeymoon period of real wage growth is unlikely to last for long."