Why it feels like you have LESS money as wage growth falls behind inflation

EMPLOYMENT in the UK has edged up since the start of the year - but wage growth still lags behind soaring inflation.

The number of UK workers on payrolls rose by 275,000 between January and February to a record 29.7million, according to the new figures from the Office for National Statistics (ONS).

The unemployment rate dropped by 0.2 percentage points to 3.9% in the three months to January.

Pay, not including bonuses, edged up just 3.8% over that period, and was up 4.8% including bonuses.

Wage growth is lagging inflation, which is currently at 5.5% and expected to reach 7%, meaning Brits are effectively feeling a real terms pay cut.

The ONS said wages fell by 1% in real terms against the cost of living - the steepest decline since July 2014.

Grant Fitzner, chief economist at the ONS, said: "The labour market continues to recover from the effects of the pandemic, with the number of unemployed people falling below its pre-pandemic level for the first time and another strong rise in employees on payroll in February.

"Because bonuses have continued at high levels for some workers, total earnings growth just kept ahead of rising prices over the past year, though regular pay has dropped again in real terms."

Inflation continues to rise as the cost of living crisis bites, meaning workers' wages won't stretch as far.

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: "On initial glance everything in the jobs market looks rosy, but something far more worrying is lurking underneath.

"Once you take inflation into account, pay has fallen faster than at any time for almost eight year.

"Unless you're one of the lucky few taking home a bumper bonus this winter, you're in for a horrible battle to make ends meet this spring."

Brits are seeing the cost of everything from goods at the supermarket to bills at home go up.

It means struggling households face a tight squeeze on wages, despite more people being in work and a higher number of vacancies.

The new data revealed that job vacancies have hit a record 1.3 million.

Lauren Thomas, Glassdoor’s EMEA economist said: "The twin blows of the pandemic and Brexit have greatly reduced labour supply in face-to-face, low-wage jobs such as retail, administrative and domestic work.

"Left with little other choice, employers have raised pay to attract the workforce they need, particularly for lower-paid employees, who have seen some of the biggest gains in wages."

But she said that sky-high inflation and the continued impact of Russia’s invasion of Ukraine on supply chains and energy prices means that wages are struggling to keep up despite this pay increases.

Inflation had been expected to peak in April, but the invasion of Ukraine has meant many experts now think it stay higher for longer.

Households could be set for more hikes later this week if the Bank of England decides to increase interest rates when it meets on Thursday.

It has hiked base rate - currently 0.5% - at its previous two meetings, and the rate is expected to reach at least 2% by the end of the year.

Raising interest rates is one tool the Bank of England has to try to stop inflation spiralling, but it has a knock-on effect on UK households, who will see the cost of borrowing including credit cars, loans and mortgages go up.