New data from the Office for National Statistics reveals that average regular pay (excluding bonuses) rose by 3.4% in the three months to May, but after accounting for inflation, the increase was just 0.4% in real terms. This marks a slight improvement from the 0.3% real terms rise in the three months to April, yet it underscores the persistent financial strain on millions of UK households.
The figures come as newly appointed Prime Minister Andy Burnham prepares to announce a series of measures to tackle the cost of living crisis on his first full day in office. Burnham has already initiated action by removing VAT on electricity bills, a move expected to save the average household approximately £45. In his inaugural speech outside Downing Street, Burnham pledged to provide “breathing space” on living costs.
Wage Growth Trends and Inflation Impact
According to the ONS, regular pay growth has slowed significantly over the past year. In April 2025, wages were rising at an average rate of 5.1%. However, inflation has also been declining, which has partially offset the impact on household budgets. The consumer price index (CPI) measure of inflation stood at 2.8% in May, and economists anticipate it will fall further to 2.6% when June data is published on Wednesday.
Susannah Streeter, chief investment strategist at Wealth Club investment service, commented: “Any relief may prove short-lived given this escalation in the Middle East, which is likely to feed through into fuel, transport and business costs over the coming months. With the respite from higher inflation looking increasingly fleeting, interest rate expectations have shifted again, with at least two rate hikes now being priced in by financial markets. This will have yet another effect on affordability and is likely to keep more buyers on the sidelines.”
Jobs Market Shows Signs of Weakness
The new PM’s arrival coincides with worrying indicators in the UK labour market. The ONS estimated the unemployment rate at 4.9% in May, unchanged from April, with 1.76 million people out of work. Experts warn that unemployment could rise in the coming months. The number of job vacancies fell by 7,000 to 712,000 in the three months to May compared with the previous quarter, though it remained above the 707,000 recorded in the three months to April, which was the lowest level since early 2021.
The employment rate for people aged 16 to 64 years was estimated at 75.1% in March to May, down 0.1 percentage point year-on-year but up 0.1 percentage point from the previous quarter. These figures highlight a mixed picture, with the labour market showing resilience in some areas but cracks appearing in others.
Government Response and Outlook
Prime Minister Burnham’s early focus on energy costs reflects the urgent need to address household financial pressures. The removal of VAT on electricity bills is one of several anticipated measures aimed at easing the burden. However, with geopolitical tensions and potential further interest rate hikes on the horizon, the outlook for UK households remains uncertain.
