29.08.2023

£3K pay rise needed to keep pace with inflation

New research by peer-to-peer real estate investment platform, easyMoney, reveals that the average annual UK salary would need to increase by £3,000 in order to keep pace with inflation in 2023.

easyMoney has analysed historic annual changes in the average rate of inflation and the average salary in the UK to see how the size of today’s gap between costs and earnings compares to previous years.

Inflation is the rate at which the price of goods and products increases over time. An inflation increase results in a reduction in the spending power of money. As such, an ideal world would see earnings and inflation increase at roughly the same rate. Unfortunately, this is rarely the case.

The data shows that in 2021, the average annual salary fell by -0.7% to £31,437. At the same time, inflation rose by 2.6%.

In 2022, earnings saw a promising uptick of 6.3% to reach an average of £33,402 per year. Unfortunately, 2022 also saw inflation rise by 9.1%

Based on the average rate of inflation for 2023 so far, it can be forecast that by the end of the year, the year-on-year increase will be a further 9%.

In order to match this increase with a complimentary 9% rise in earnings, the average salary would have to increase by £2,992 to reach £36,394 by the end of the year.

Even if the salary increase was based on the most recent monthly inflation rate (July 2023) of 6.8%, earnings must increase by £2,271 per year to keep pace.

To add further frustration to working people, the inflation pay gap is larger in some parts of the UK than others.

In Birmingham, year-on-year inflation currently sits at 10.8% while earnings have increased by 7.1%; a gap of just 3.7%.

Meanwhile, in Aberdeen, inflation is 10.2% while earnings have increased by just 3.7%; a gap of 6.5%.

In London, the gap is 6.3%, and in Glasgow it’s 6%.

Jason Ferrando, CEO of easyMoney said: “Rising inflation is reducing the spending power of the pound and making everyone in the UK worse-off. On top of that, wage growth simply isn’t keeping pace, making the situation even worse.

"With the economy as it is, many businesses and employers are reluctant to give sufficient pay rises because they’re already concerned about surviving this period of financial stress. As such, those who are lucky or savvy enough to have some savings squirrelled away might want to look at using it to invest.

"Interest rates are climbing and while not every financial institution is passing this benefit onto savers, there are many avenues that are providing strong returns that could go some way towards easing the pressures of low pay and high inflation.”

Posted by: FMJ 0 comment(s)