Private sector workers face worst real pay squeeze since 2022 as oil-driven inflation bites

Average weekly earnings excluding bonuses rose 3.4% in the three months to March, matching average inflation over the quarter, while including bonuses rose 4.1% and was likely boosted by large financial services payouts. Real incomes are expected to flatline through 2026 as higher global crude prices push CPI back toward 4%. Unemployment is at 5% and youth joblessness is at an 11-year high, reducing bargaining power for working households. Wage growth has weakened across most sectors, with construction wages falling 0.6% between January and March due to higher energy, transport, and raw material costs linked to the US-Iran conflict. Private sector earnings growth is about 3%, the slowest since the pandemic, with a rolling three-month pay gain of 0.6%.

"Figures released by the Office for National Statistics this week show that average weekly earnings excluding bonuses rose by 3.4 per cent in the three months to March, exactly matching the average rate of inflation over the quarter. Including bonuses, the figure climbed to 4.1 per cent, although that headline number was almost certainly flattered by outsized payouts in the City's financial services sector."

"For the rank-and-file employee outside the public payroll, the picture looks considerably bleaker. Real incomes are on course to flatline through 2026, with the surge in global crude prices expected to drag annual CPI back up towards 4 per cent in the coming months. With unemployment now at 5 per cent and youth joblessness at an 11-year high, the bargaining power that working households briefly enjoyed during the post-pandemic labour shortage has all but evaporated."

"Wage growth has weakened across nearly every sector of the economy, with construction wages actually contracting outright by 0.6 per cent between January and March. Builders have been hit on three sides at once, energy, transport and raw materials, since the US-Iran conflict triggered a fresh spike in oil and shipping costs."

"Private sector earnings growth has slipped to 3 per cent, the slowest pace since the pandemic. Analysts at ING calculate that the rolling three-month measure of private sector pay grew by just 0.6 per cent, its weakest reading in more than a decade."

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