Inflation up but over 16 million Brits face a pay freeze
Despite soaring living costs over 16 million Brits, six in ten (56%) of the working population, face a pay freeze this year according to new research from uSwitch.com, the independent price comparison and switching service. As the economy limps on, just one in ten workers (11%) have been given a pay rise, and over three quarters of these (79%) have been given a pay increase at less than inflation.
The average pay rise is just 3.4%, but inflation is currently 4.0%. Incredibly this means just 21% of those who've had a pay rise have seen their pay keep up with inflation. And with train fares having rocketed by 5.8% on average and petrol prices soaring by 15% in the last year, hard-pressed Brits are seeing any salary increase potentially wiped out by the cost of travelling to work.
On top of the hike in rail fares, consumers have seen energy bills rise by 5.9% since November 2010 and food inflation is currently 6.3% - rising three times faster than the average rate of the G7 group of nations. This is putting pressure on people. Of those experiencing a pay freeze, one fifth (20%) will look to take a second job or increase their hours, while half (50%) will severely rein in spending this year. But across the board rising costs haven't gone unnoticed by consumers - four in ten (39%) feel financially worse off than before and over 7 million (15%) are at best breaking even at the end of each month.
To make matters worse Brits are still feeling the pain of the VAT increase that kicked in at the start of the year. Four in ten (42%) are concerned about the way it has caused the cost of living to soar. Over a third (37%) have offset the rise by finding cheaper alternatives when shopping, but nearly 11 million (22%) have been forced to cut back on food.
Last month the Governor of the Bank of England blamed the rise in VAT, the continuing consequences of the fall in sterling in late 2007 and 2008 and recent increases in commodity prices, particularly energy, for high inflation. But more worrying for consumers was the warning that inflation is likely to continue to be between 4% and 5% over the next few months.
The VAT increase, feeling less well off than before and fears over job security are some of consumers' key concerns. A quarter (24%) feel their job security is less certain, while 41% are worried about the job security of the main breadwinner of their household. Worryingly a quarter (23%) of people would have nothing to fall back on if the main breadwinner lost their job.
The biggest threat however is the Bank of England base rate. Having been at a historic low of just 0.5% since March 2009, nearly 8 million homeowners (68%) could see their monthly mortgage payments soar if the base rate increases. And as rumours grow of an increase in the rate, nearly a quarter of Brits (22%) are worried about the financial impact.
Ann Robinson, Director of Consumer Policy at uSwitch.com, says: "The Government may be about to address the nation's budget, but with four in ten Brits feeling worse off than before, household budgets are also feeling the strain. It will be even harder for the Government to put people's minds at ease when almost six in ten of the workforce is witnessing a pay freeze. Consumer confidence needs to be on the up if the economy is going to improve, but with household bills soaring and pay in real terms falling, confidence is plummeting. With less pounds in our pockets, the Government faces an uphill battle to boost the mood of the nation and get the economy moving again.
"With the cost of living outstripping pay, all consumers need to start paying serious attention to their spending habits. Consumers should follow the Government's lead and try to reduce their own budget deficit. Plugging the hole by borrowing is not a long term solution, but by stripping down their essential bills to the bare minimum consumers can help themselves."