A recent analysis by the peer-to-peer real estate investment platform, easyMoney, reveals that to match inflation in 2024, the average annual UK salary would need to increase by £1,239. This insight underscores the ongoing challenge of ensuring earnings keep pace with the rising cost of living.
Analysis of Inflation and Salaries
easyMoney’s analysis looked at historical changes in the average rate of inflation, based on the ONS Consumer Price Index, and the average salary in the UK. The findings highlight the persistent gap between salary growth and inflation over recent years.
Understanding Inflation
Inflation measures the rate at which the price of goods and services increases over time, reducing the spending power of money. Ideally, earnings should rise in tandem with inflation to maintain purchasing power, but this is seldom the case.
Recent Trends in Salary and Inflation
In 2022, the average salary increased by 6.4% to £33,449, while inflation surged by 9.1%. This resulted in a 2.7% shortfall in salary growth relative to inflation. The following year saw a 5.8% increase in earnings to £35,404, but with inflation at 7.3%, earnings were still 1.5% behind.
Forecast for 2024
For 2024, the forecasted average rate of inflation is 3.5%. To match this with a corresponding 3.5% salary increase, the average salary would need to rise by £1,239, reaching £36,643 by the end of the year.
Investing Your Pay Rise
If you receive a pay rise, consider investing your additional income, especially as inflation eases and the cost of living stabilises.
Investment Options
- Stock Market and Property: These require substantial upfront capital.
- Individual Savings Accounts (ISAs): A more accessible option, with the main advantage being the personal ISA allowance, which exempts up to £20,000 from tax on interest earned.
Types of ISAs
- Cash ISA: Functions as a savings account with annual interest rates typically ranging from 4% to 6%.
- Innovative Finance ISAs (IFISAs): These can offer higher returns by allowing investments in peer-to-peer lending. For instance, easyMoney’s property-backed IFISA has an annual target rate of 5.53% to 10%.
Expert Insight
Jason Ferrando, CEO of easyMoney, states:
“With inflation finally starting to slow after three years of remarkable growth, now is the perfect time to be asking for a pay rise in line with inflation. This bump in earnings would only need to measure at least 3.5% as opposed to almost 10% a couple of years ago, so bosses and companies are going to be far more likely to oblige than they might have been in the recent past.
The downside of this is, of course, that a rise in line with inflation isn’t as much this year as it would’ve been before, so you might want to look at investing to bolster your income.”
Final Thoughts
To maintain purchasing power amid ongoing inflation, a £1,200 pay rise is essential for the average UK worker. For those fortunate enough to receive this increase, investing wisely can further enhance financial stability and growth.
Data Sources
- Inflation Data: Office for National Statistics – Consumer Price Index
- Salary Data: Office for National Statistics – Employee Earnings in the UK
- Full data tables and sources can be viewed online here.
