Regular wages grew 3.5% over the year, but once Inflation is stripped out the real gain was only 0.6% — a gap that explains why pay rises can still feel like standing still.

Two numbers capture the state of British pay this autumn. Average regular earnings, excluding bonuses, grew by 3.5% in the year to July 2026. Yet once that growth is adjusted for inflation, the real increase in what those Earnings can actually buy was just 0.6%. The figures, published by the Office for National Statistics (ONS) on 15 September, explain a common frustration: why a pay rise on paper can feel like little more than treading water.

The distinction between those two figures — nominal pay growth and real, inflation-adjusted pay growth — is the difference between the size of the number on a payslip and what that number is worth once higher prices are taken into account. Understanding the gap is central to understanding the squeeze many workers describe.

Nominal versus real: what the terms mean

Nominal pay growth is simply how much larger wages are than a year ago, before any adjustment. At 3.5% for regular pay, and 3.9% for total pay including bonuses, that growth is positive and not negligible. In isolation, it looks like workers are getting ahead.

Real pay growth adjusts that figure for inflation, showing whether earnings are rising faster or slower than the prices people pay. The ONS calculates it by discounting nominal growth by an inflation measure. Using the Consumer Prices index including owner occupiers' housing costs (CPIH), regular pay rose 0.6% in real terms; using the narrower Consumer Prices Index (CPI), it rose 0.8%. Either way, the real gain is a fraction of the headline 3.5%.

Why the two numbers diverge

The gap between 3.5% and 0.6% exists because inflation eats up most of the nominal increase. If wages rise 3.5% but the cost of living rises by roughly 3% at the same time, only the sliver of pay growth above inflation represents a genuine improvement in living standards. The rest is absorbed by higher prices for the same goods and services.

This is why economists distinguish so firmly between the two measures. A large nominal pay rise during a period of high inflation can leave a worker no better off, or even worse off, in real terms. Conversely, a modest nominal rise during a period of low inflation can deliver a meaningful real gain. The headline percentage alone does not reveal which is happening; only the inflation-adjusted figure does.

Bonuses and the total pay picture

Including bonuses lifts the numbers slightly. Total pay grew 3.9% in nominal terms and, in real terms, was up 0.9% on the CPIH measure and 1.1% on the CPI measure. Bonuses can be volatile and are concentrated in particular sectors and times of year, so total pay can move differently from regular pay. Regular pay, excluding bonuses, is usually treated as the cleaner gauge of underlying wage trends because it is not distorted by one-off payments.

Even on the more generous total-pay measure, the real-terms improvement remains around one percentage point. The broad conclusion holds across measures: pay is growing faster than prices, but only just.

Percentages and percentage points

A further point of precision matters when comparing these figures. The difference between 3.5% nominal growth and 0.6% real growth is best described as a gap of about 2.9 percentage points, not as pay being 2.9% lower. Percentages and percentage points are not the same thing, and conflating them is a frequent source of confusion in coverage of economic data.

The same care applies to inflation itself. When the CPI rate moves from 2.9% to 3.1%, that is a rise of 0.2 percentage points in the rate of inflation, not a 0.2% change. Keeping the units straight is what allows a reader to judge whether a pay rise is genuinely keeping pace with the cost of living.

What it means for households

For a worker on around the average, a real regular pay gain of 0.6% means spending power is inching up rather than climbing. It is an improvement on the real-terms pay cuts seen during the sharpest phase of the recent inflation surge, when prices rose faster than wages and living standards fell. But it is a slender margin, easily wiped out for anyone whose personal costs — rent, fuel, energy — are rising faster than the national average.

That is why the squeeze persists even as the official numbers show real pay rising. The average conceals a wide spread of experiences, and a 0.6% real gain leaves little cushion. The ONS figures set out the arithmetic clearly: pay is rising, prices are rising nearly as fast, and the difference between the two is what determines whether households actually feel better off. On the latest data, that difference is small — which is precisely why so many people feel their pay rise has not stretched as far as the headline suggests.

A slender margin, unevenly shared

The averages also disguise how unevenly pay growth is spread. A single national figure of 3.5% is the midpoint of a wide range: some workers and sectors will have seen increases well above it, others little or nothing. For anyone whose pay rose by less than inflation, real earnings fell, regardless of what the national average shows. The 0.6% real gain is therefore a description of the typical experience, not a guarantee enjoyed by all.

Timing matters too. Because pay settlements often happen once a year, an individual can spend months with pay fixed while prices keep rising, only to see their real position restored at the next review. The smooth national series masks that lived experience of falling behind and catching up. The choice of inflation measure changes the figure as well: deflating by CPIH gives 0.6% for regular pay, while deflating by CPI gives 0.8%. Neither is wrong, but they answer slightly different questions, and comparing a real-pay figure built on one measure with one built on another can mislead. The ONS publishes both precisely so the basis of any comparison is clear. None of this diminishes the value of a pay rise; a 3.5% increase is real money in a pay packet. But the gap between that headline and the 0.6% that survives inflation explains why the rise looks larger on paper than it feels in everyday practice.