The typical worker in Britain will need pay rises worth more than £2,000 within the next two years – just to be able to afford what they can today, Telegraph analysis of Office for Budget Responsibility forecasts has found.
Use our calculator below to see how your salary is being eroded by inflation and the pay rises you need to protect your purchasing power.
The average UK salary is £24,492, but under current inflation forecasts it would have to rise to £26,794 by the beginning of 2024 to maintain its present purchasing power.
Without a pay rise, this salary would be effectively worth just £22,388 by 2024 in today’s prices.
Over the next five years, those on a typical salary would need their pay to rise to £28,350 to overcome the impact of inflation on their finances – an increase of almost £4,000.
In fact, with inflation already soaring, a £24,000 salary agreed only a year ago is now effectively worth just £22,597.
Forecasts released by the OBR for the Budget last month predict that inflation will peak at almost 9pc by the end of this year – its highest level for 40 years.
Even if the figure then starts to fall, significant inflation is expected to remain until at least 2027, after a long period of relatively steady prices induced in part by the financial crisis and the pandemic.
The OBR’s dire forecasts came after the Governor of the Bank of England, Andrew Bailey, told workers not to ask for big pay rises in order to stop prices rising out of control.
After announcing a rise in official interest rates in February, Mr Bailey said: “We do need to see a moderation of wage rises. I don’t want to sugar that, it is painful. But we need to see that in order to get through this problem more quickly.”
Consumers are already feeling the effects of the cost of living crisis, following the rise in energy bills. Average households on standard tariffs have seen their annual bill increase by £693 from £1,277 to £1,971.
The OBR has forecast the biggest drop in living standards in the final months of 2022 since the 1950s.
