When did you last check whether your pay rise was really a pay rise? This week, Britain’s statisticians answered that question for the whole country, and the answer was yes. Just about.
What Happened
On Tuesday, the Office for National Statistics (ONS), the UK’s official number cruncher, reported that regular pay, excluding bonuses, grew 3.7% in the three months to August 2026. Total pay, bonuses included, also grew 3.7%. Unemployment edged down to 4.7%, while job vacancies fell to 691,000, the lowest outside the pandemic since 2014.
On Wednesday came the prices. The Consumer Prices Index (CPI), which tracks the cost of a typical basket of shopping, rose 3.5% in the year to September. That was up from 3.1% in August and above the 3.4% economists expected. Transport did most of the lifting, with diesel at its highest price since July 2022. Core inflation, which strips out energy, food, alcohol and tobacco, rose to 2.8% from 2.6%.
Markets took it calmly. The pound barely moved, sitting just below $1.34 (US dollars), and ten-year gilt yields, what the UK government pays to borrow for ten years, stayed close to 5.4%, near their highest in many years.
Why It Matters
Real pay is pay growth minus inflation. It tells you what your money can actually buy. The ONS works it out by matching the same months for pay and prices; on that basis, regular pay grew 0.8% in real terms. That is still growth. But September’s prices arrived after those pay figures, and 3.5% eats most of a 3.7% rise. The cushion is getting thinner.
It is thinnest in private businesses, where regular pay grew 3.0%, below September’s inflation rate. Public sector pay grew 6.3%, although the ONS notes that the timing of this year’s pay awards flatters that figure.
All this lands a week before the Budget, which is where pay meets tax. The personal allowance, the amount you can earn before income tax starts, has been frozen at £12,570 (pounds sterling) since 2021 and, under current plans, stays there until 2031. When pay rises and thresholds don’t, more of each rise is taxed. Economists call it fiscal drag. It is quiet, and it is real.
What It Teaches
This lesson travels, whether you are paid in pounds, dollars or euros. A growing number is only good news once you remove inflation. A 4% pay rise in a year of 3.5% inflation buys you roughly 0.5% more, before tax.
The same works for savings and investments. A savings account paying 3% while prices rise 3.5% is losing buying power, even as the balance climbs. Economists call the habit of watching the number rather than what it buys the money illusion.
Your inflation is not the national inflation. If you drive a lot, September cost you more than average. If you mostly cook at home, food prices rose only 1.3%. So the question worth asking of every rise and every return is simple. After inflation, and after tax, what is left?
What I Did
Over coffee on Wednesday, a friend told me her 4% rise felt like nothing. So we did the sum on a napkin: her rise, minus September’s inflation, minus the tax on the extra. What was left was real, but small enough to make her laugh, then frown.
Then I read both ONS releases and reread our piece on why a strait you will never see sets your petrol price, because September’s figure was, once again, a fuel story.
What to Watch Next
On Wednesday 28 October, the UK Budget is delivered from about 12:30 UK time, with the Office for Budget Responsibility’s forecasts published when the Chancellor sits down. Watch thresholds and allowances rather than headline tax rates, because that is where a Budget reaches your payslip.
That same evening, the US Federal Reserve announces its decision at 14:00 Eastern Time (18:00 UK). On Thursday 29 October, the European Central Bank decides at 14:15 Frankfurt time (13:15 UK). 3 Big moments in about a day. I will read them in that order, impatiently.
Stay curious, J.
If this was useful, The Jacqueline Read arrives every Sunday with one clear lesson on money, markets and crypto. It is free, and I would love to see you there.
The Jacqueline Brand: knowledge builds confidence; confidence builds wealth.
This is editorial commentary for information and education only. It is not financial, investment or professional advice, and nothing here is a recommendation to buy or sell any investment. The Jacqueline Brand is not authorised or regulated by the Financial Conduct Authority. The value of investments can fall as well as rise, and past performance is not a guide to future returns. Figures were correct at the time of publication. Always do your own research and consider speaking to a regulated adviser.
