Wages fall 3.9% - the fastest rate in 13 years - as cost-of-living crisis bites

Pay is falling at the fastest rate in 13 years as the cost-of-living crisis bites - with older people forced back into the jobs market.

As the country is wracked by strikes, official figures showed total wages declining by 3.9 per cent a year in the quarter to October, taking CPI inflation into account.

That was the worst figure since the aftermath of the credit crunch in 2009. Meanwhile, unemployment ticked up to 3.7 per cent and there are signs that struggling over-50s are rethinking early retirements.

The proportion classed as 'economically inactive' - which has been spiralling since the pandemic - decreased by 0.2 percentage points. 

Job vacancies also dipped slightly, although they remain at a historically high level, reflecting companies' battle to find the right staff.

October was the worst month for industrial action in more than a decade, with 417,000 days lost. 

Chancellor Jeremy Hunt said the grim figures showed 'difficult decisions' are needed, warning that demanding huge pay rises will only 'prolong the pain for everyone' by embedding inflation.    

Mr Hunt said: 'While unemployment in the UK remains close to historic lows, high inflation continues to plague economies around the world as we manage the impacts of Covid-19 and Putin's invasion of Ukraine.

'To get the British economy back on track, we have a plan which will help to more than halve inflation next year - but that requires some difficult decisions now. Any action that risks embedding high prices into our economy will only prolong the pain for everyone, and stunt any prospect of long-term economic growth.

'With job vacancies at near record highs, we are committed to helping people back into work, and helping those in employment to raise their incomes, progress in work, and become financially independent.'

The UK workforce has been shrinking in recent years due to rising numbers of long-term sick, as well as students, while a raft of people over 50 also took early retirement during the pandemic.

But rising costs are forcing people to rethink.

ONS head of economic statistics Sam Beckett said: 'This quarter the proportion of people neither working nor looking for a job fell, driven by a drop in the number of working-age people regarding themselves as retired. 

'This tallies with other data which suggest more people in their 50s are thinking of going back to work, at a time when the cost of living is rising rapidly. 

'With more people re-engaging with the labour market, there were more in employment and also more who were actively looking for a job.'

In cash terms, both total and regular wages increased at an annual rate of 6.1 per cent in the quarter to October.

For regular pay that was the strongest growth outside of the Covid period. 

But accounting for CPI inflation, regular pay fell by 3.9 per cent on the year, only slightly below the record set in the quarter to June - 4.1 per cent. 

Official figures show the jobless rate rose to 3.7% in the three months to October, up from 3.6% in the previous quarter. 

That was a 23,000 rise to 1.2 million, but there was also an increase in those employed – up 27,000 to 32.8 million as 76,000 fewer people were classed as economically inactive.

The more timely pay as you earn (PAYE) data revealed the number of workers on UK payrolls rose by 107,000 between October and November to 29.9million.

The data from the Office for National Statistics (ONS) also shows that vacancies dropped by 65,000 in the three months to November to 1.9 million – the fifth quarterly decline in a row and the first annual fall since the beginning of last year. 

Experts said the figures flag a faltering jobs sector as firms batten down the hatches ahead of what is expected to be a lengthy recession caused by the costs crisis. 

More people are also choosing to return to work to combat soaring prices, with the inactivity rate falling to 21.5 per cent from 21.7 per cent, driven largely by the over-50s opting to go back to employment. 

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: 'More people are leaving the inactive masses, clearly keen to earn extra money as the cost-of-living crisis intensifies.'

She added: 'With the fight for talent easing a little though, it's welcome news on the inflation front as this may start to dampen down wage demand spiral, which the Bank of England fears could become embedded in the economy.'

Kitty Ussher, chief economist at the Institute of Directors, said the rise in unemployment suggests 'the labour market has now turned'.

She said the fragility of the jobs sector should temper the Bank of England's interest rate decision on Thursday.

'The Bank of England therefore needs to pause for thought before continuing its aggressive path of interest rate rises,' she added.

'When the medicine is starting to work it can be reckless to keep increasing the dose.'

Economists are pencilling in a smaller rate rise compared with November's 0.75 percentage point hike, predicting an increase from 3 per cent to 3.5 per cent this week.

But the rapid rise in private sector wages will be 'unwelcome' news for the Bank, according to Sandra Horsfield at Investec Economics.

'It might point to more persistence in price pressures, suggesting the risk of a wage-price spiral developing is not yet averted,' she said.