Annual growth in regular pay, excluding bonuses, rose to 7.8 per cent in the three months to the end of June – the highest level since records began in 2001, data from the Office for National Statistics (ONS) has shown.

However, when adjusted for inflation, annual growth for total pay rose by just 0.5 per cent and for regular pay, 0.1 per cent.

Jonathan Boys, senior labour market economist at the CIPD, said the latest ONS stats show that the UK labour market remains “competitive”, and despite the only slight increase in regular wage growth when inflation is factored in, “we can finally say that pay is growing”, he said.

“While this may be good news for workers, high nominal pay rises are now an established feature of the labour market and this will worry the Bank of England who will be keen to mitigate the effects of a wage-price spiral,” Boys added.

“Even once pay starts to rise in real terms it will be some time before the ground lost during the squeeze will be made up,” he warned.

As well as accelerating pay growth, CPI inflation fell to 6.8 per cent in July – down from 7.9 per cent in June and 10.1 per cent in January – making it the sharpest six-month fall in inflation since September 1992, ONS data shows.

This means the Bank of England faces a “daunting task” to balance the market, James Smith, research director at the Resolution Foundation, said.

“The UK has experienced the third largest price pressures of any advanced economy since the pandemic. This highlights just how painful this cost of living crisis continues to be,” he added.

Similarly, Qdos CEO Seb Maley, said while rising pay and falling inflation suggests “we are heading in the right direction, the stark reality is that many people are still struggling to make ends meet”.

Indeed, further People Management reporting shows that employers are increasingly seeing staff working from home, as they struggle with the costs of commuting.

Maley suggested that the continuing cost of living crisis could also see more people turn to “side hustles” and self employment to help boost their income.

Mark Grant, business finance broker at The Business Finance Branch, said that business confidence will remain “subdued” ahead of further wage growth and market price changes, and in the meantime “companies’ finances are still getting stretched while their staff look for higher wages”.

“Many businesses are still in a phenomenal financial bind,” he added.

While the market continues to flux, Boys suggested employers are well-placed to understand their employee’s financial situation and offer support.

“To alleviate the burden, employers can make fringe benefits work harder. Benefits such as flexible working to reduce commuting costs, childcare support and occupational sick pay can make a big difference to people’s financial situation and wellbeing,” he said.

Kate Shoesmith, deputy chief executive of the Recruitment & Employment Confederation agreed, adding that businesses stand to benefit too.

“Pay is important, but it is not the only thing employers should consider. Today’s workers weigh pay against the whole package, such as flexible working, training, annual leave – and even whether the corporate culture aligns to their personal values.”