Wage Growth vs Inflation: Are UK Workers Actually Getting Better Off?

Average wage growth is 5.6% while CPI is 2.8% — theoretically real wages rising at 2.5%. But for many households, the maths doesn't feel right.

The Measurement Problem

Average wage growth includes bonuses and workforce composition shifts. When large numbers of lower-paid workers left the labour market post-COVID (early retirement), this mechanically raised average wages without any individual worker being paid more. Strip out bonuses and the picture is less rosy.

The Cumulative Problem

During 2021–2023, real wages fell sharply. Even growing 2.5% above inflation now, it takes years to recover that lost purchasing power. A worker earning £30,000 in 2021 who received CPI-matching rises through 2025 is still thousands of pounds worse off in real terms than if inflation had tracked the 2% target.

Key TakeawayIf your pay hasn't risen by at least CPI over the past year, you've had a real pay cut. Use this in salary negotiations — it's a legitimate, quantifiable argument.

What This Means for the BOE

Strong wage growth makes the BOE's job harder. If workers get higher wages, businesses raise prices (wage-price spiral). This keeps inflation above target — which is why the MPC has been cautious about cutting rates even as CPI approaches 2%.

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