Real terms is the change in a financial number after correcting for the effect of inflation.
Spiralling food and energy prices mean that people in parts of the country are effectively earning as much as £153 per month less than this time last year.
Average earnings in April across the UK were around 3% less in real terms than the previous year, an analysis of Pay as You Earn (PAYE) data from the Office for National Statistics (ONS) has found.
The figures refer to employees only, with salaries for self-employed people excluded.
This real-terms drop in wages across the board comes despite increases to the National Living Wage (NLW) and national minimum wage in 2021, as well as an extension of eligibility for the NLW to include 23 and 24 year olds, when previously it only applied to over 25s.
What about Birmingham?
In Birmingham, real terms pay is down by 4.4% in the last year.
Average monthly earnings in Birmingham in April 2021 were £1,798, compared with £1,873 in April 2022.
This means people in the city are effectively earning as much as £87 per month less than this time last year.
Though the Covid recovery period did show brief signs that this trend could be set to change across the UK, price increases and stalling real-terms wage growth in recent months now suggest otherwise.
According to the ONS, the rate of inflation as measured by the Consumer Price Index (CPI) hit 9% in April 2022, the highest since 1989.
This has largely been driven by increasing wholesale energy prices, and the knock-on effect of these on production costs.
This high rate of inflation is only likely to increase in coming months, with a further uplift in energy bills expected in October, leading the Bank of England to predict CPI could reach 10.5% before the end of the year.
What’s been said about the figures?
The effect on households, particularly when set against below-inflation wage growth, could be disastrous, particularly for those on low-incomes.
The problem is particularly acute for households which rely to some extent on welfare, as state benefits were only uprated by 3.1% in April.
The Institute for Fiscal Studies (IFS) has warned that the poorest 10% of households, who spend a higher proportion of their income on gas and electricity, currently face an even higher rate of inflation, around 10.9%.
Heidi Karjalainen, a research economist at the IFS, said this will result in “big real-terms cuts to the living standards of many of the poorest households”.
She said: “Continuing pressures, such as the war in Ukraine, are likely to push Ofgem’s October tariff cap, as well as other prices including food prices, even higher later this year.
“We are likely to be in a prolonged period during which poorer households are facing rates of inflation even higher than the headline figures would suggest.”
Which UK areas have seen the biggest drop in real-terms earnings?
Wales and Scotland have seen a disproportionate rate of wage stagnation compared with the rest of the UK. Wages there dropped by 4.4%, in real terms the worst for any region.
Of the 25 areas where real-terms wages have dropped the most, 15 are in Scotland, compared with five each in Wales and England.
In Angus and Dundee City wages are down 6.1% compared with last year, meaning a drop in earnings of £127.
In monetary terms, average wages fell the most in Camden and the City of London, with a real-terms drop of £153 (4.8%), followed by Tower Hamlets, at £140 (4.9%).
Wages in Mid Ulster in Northern Ireland have held up the best, with wages down 0.9% since last year, equating to a net loss of £18.
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