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Real wages rise for first time in 18 months

A sharp drop in the rate of inflation has given UK workers their first real-terms pay rise in 18 months.

The consumer price index (CPI) rose by 7.9% in the 12 months to June 2023, down from 8.7% in May, according to the Office for National Statistics (ONS).

With average employee pay rising 8.5% in the three months to June, analysis from think tank the Resolution Foundation has found the average worker has now seen their buying power increase for the first time in a year and a half.

More on the cost of living crisis:

Interest rates rise again; HR called on for support

A quarter of UK organisations to make redundancies in 2023

In-work poverty grew by 1.5 million since 2010

Resolution Foundation research director James Smith told HR magazine it is good news for employees.

He said: “The second-biggest fall in inflation this century has heralded a welcome return to real pay growth, easing pressure on wages and bringing Britain’s latest 18-month pay squeeze to an end.

“With the rate of price increase for some essentials easing – particularly energy and food – inflation for those on the lowest incomes is falling even faster.

“But while falling inflation is welcome, the UK still has one of the highest inflation rates of any advanced economy. So the battle to tame inflation is far from won; and employers should be aware that workers on lower wages will still be struggling to make ends meet in the months ahead.”

As cost of living challenges continue, Fiona McKee, director at consultancy The HR Practice, said HR directors have a number of tools at their disposal to help employees.

She told HR magazine: "As HR directors and business leaders we need to remain aware of those earning the lowest incomes and continue to support by providing an employee assistance programme or signposting employees affected by financial difficulties to the appropriate organisations.

"Periods of financial uncertainty can have a significant impact on employee retention and therefore HR directors should ensure the business offers competitive salaries and has a robust employee development strategy in place.

"Where possible employees should be offered the opportunity to upskill, giving them additional skills and the opportunity to be promoted into a better paid role should one become available."

One significant source of inflation has been in food and drink prices, which disproportionately affect those on lower incomes.

While food and drink inflation has begun to fall, it remains high: prices have increased by 17.4% in the year to June 2023.

March’s 19.2% was the highest annual inflation rate for food and non-alcoholic beverages in over 45 years.

Paul Nowak, general secretary of the Trades Union Congress (TUC), said it was important to remember that real wages were still well below their 2008 levels.

He told HR magazine: “With pay growth for only the higher earners, and millions stuck in low-paid and insecure work, the majority of households remain under huge pressure.

“We need a credible plan for boosting living standards over the long term; the Conservative government has yet to produce one.”