London Daily

Focus on the big picture.
Tuesday, Sep 15, 2026

UK living standards squeeze will intensify as real pay plunges

UK living standards squeeze will intensify as real pay plunges

Analysis: Rising inflation likely to lead to more strikes and falling spending unless government acts

Forget talk of a return to the inflationary spirals of the 1970s. The real story of Britain’s labour market is of an intensifying squeeze on living standards as the gap between pay and the cost of living widens.

Real regular pay – wages adjusted for prices once bonus payments have been stripped out – were 2.8% lower in the three months to May than in the same period of 2021. Not only was that the sixth monthly decline in a row, it was the biggest drop since modern records began in 2001.

What’s more, there is worse to come as inflation heads higher over the coming months. Pay growth excluding bonuses picked up slightly from 4.2% to 4.3% according to the latest Office for National Statistics data but nowhere near fast enough to keep up with price increases. If the Bank of England is right and inflation peaks above 11% after energy bills rise again in the autumn, the pressure on household budgets will be enormous.


Including bonuses, the picture is a bit brighter. Here the fall in real pay is smaller – at 0.9% – but the benefits of bonuses have been skewed towards better-paid workers in the finance and business services sectors and construction. These groups enjoyed annual total pay growth of 8.2% and 8.1% respectively, enough to keep pace with price rises.

But not all workers can rely on bonuses to top up their pay packets. Real earnings are falling particularly rapidly in the public sector, where total pay was just 1.5% higher in the three months to May than it was a year earlier.

The ONS labour market figures show a decline in inactivity as people return to the workforce in search of jobs. This is not entirely surprising: job vacancies are at record levels and households need paid employment when they are struggling to pay the bills.

Two big conclusions can be drawn from the latest data. The first is that there will be trouble ahead unless the government responds to the falling living standards of teachers, nurses, civil servants and other groups of public sector workers. This will mean either people leaving the public sector or strikes, and probably both.

The second is that the economy is rapidly reaching crunch point. If average regular pay is rising by just over 4% and annual inflation is running well above 10%, something has to give. That something will be consumer spending, with the lowest-paid and most vulnerable workers suffering most.

Newsletter

Related Articles

0:00
0:00
Close
HMRC Warns Nearly Seven Million Adults Are Unclear About State Pension Entitlements
UK Parliament Passes Sovereign Grant Reform Before Conference Recess
British Rail Passengers Gain Automatic Right to Switch Operators During Disruptions
Burnham Hosts Downing Street Business Summit as UK Fiscal Pressure Builds
Labour Government Moves to Challenge £72 Million in Reform UK Crypto Donations
UK Advertising Industry Warns Wider Junk Food Rules Could Put £1 Billion in Media Spending at Risk
Cornwall Opens Devolution Talks With UK Government Over Transport and Local Services
UK Parliament Considers Sovereign Grant Reform Setting Royal Funding at £99.9 Million
Trades Union Congress Calls for Income-Based Energy Tariff Funded by Higher Bank Levy
UK Prime Minister Rejects Second Scottish Independence Referendum
House of Lords Begins Scrutiny of Bill to Lower UK Voting Age to 16
Anthropic Says Claude Was Exploited in Weapons-Related and State-Linked Cyber Activity
Institute of Directors Urges UK Government to Avoid Business Tax Increases in Autumn Budget
Rising Gilt Yields Cut UK Fiscal Headroom to About £13 Billion Ahead of Budget
UK Economy Grows 0.4% in July as Services and Technology Activity Strengthen
UK Government Promises Clearer Student Loan Guidance After Repayment Backlash
Charities Warn Unpaid Carers May Die Before Receiving Government Compensation
Dover Unrest Prompts Review of UK Counter-Extremism Strategy
Celtic Summit Leaders Reassert Right to Pursue Independence From UK
NHS Records Busiest Summer on Record Amid Severe Heatwaves
Harrods Faces Potential £150 Million Compensation Bill Over Al Fayed Abuse Claims
UK Parliament Opens Debate on Landmark Assisted Dying Legislation
Metropolitan Police Investigate Reform UK Over Alleged Foreign Electoral Donations
UK Economy Expands 0.4% in July as AI Investment Boosts Activity
Bank of England Signals Caution on Rates as Inflation Pressures Persist
Tesco Alerts Police After Scammers Use Its Branding in AI-Generated Fraud
Lindy Cameron Appointed First Female Permanent Under-Secretary at UK Foreign Office
UK Government to Rewrite Student Loan Guidance After Mis-Selling Criticism
Welsh First Minister Warns Andy Burnham Government to Respect Devolution
Trump’s Falkland Islands Remarks Trigger New Diplomatic Tension With Britain
Reform UK Receives Record £72 Million Donation From Cryptocurrency Billionaires
UK Bans Imports From Israeli West Bank Settlements and Sanctions Supporting Institutions
Bayeux Tapestry Draws Large Crowds at British Museum
Cuts to International Aid Raise Concerns Over Fragile Overseas Health Systems
UK Airlines and Logistics Operators Adjust Capacity as Fuel Costs Rise
UK Mortgage Arrears Edge Lower in Second Quarter
UK Government Advances New Devolution Offers for English Councils
UK Parliament Begins Debate on NHS Governance and Single Patient Record Reforms
Andy Burnham Launches Number 10 North Devolution Initiative
UK Parliament Rejects Assisted Dying Bill for Terminally Ill Adults
UK Bans Goods From Israeli Settlements in the Occupied West Bank
UK Economy Grows 0.4% in July as Technology Services Strengthen
Metropolitan Police Continue Investigation Into Reform UK Political Financing
Chinese Crypto Entrepreneur Leon Li Identified as Seller of £190 Million London Mansion
Trades Union Congress Proposes Social Energy Tariff Funded by Higher Bank Surcharge
British Chambers of Commerce Calls for State Pension Triple Lock to Be Scrapped
Anthropic Says Claude Helped Disrupt Biological Weapons and Cyber Espionage Threats
UK Imposes Sanctions Over Israeli Settlements and West Bank Violence
UK Reimposes Sectoral Sanctions on Iran’s Aviation, Shipping and Energy Networks
UK Economy Grows 0.4% in July as AI and Programming Services Lift Activity
×