Given that this is well below inflation (the Consumer Price Index was 2.8% in July), it is not just those out of work who are feeling economic pain. Many in work are, too.
In the past month, Employee Benefits has reported on a number of strikes and threats of industrial action, and no doubt will continue to do so during the remainder of the year.
But largely, UK workforces have swallowed the year-on-year effective pay cuts with no more than a few grumbles. That said, they do not have much choice to do otherwise.
The employment market is changing shape: more low-paid jobs are being created, while there are fewer middle-level jobs to be had. We are shifting downwards.
Clearly, there are many reasons for this, and I am no economist. But I am aware that competition for jobs and positions is no longer country-specific. Cheaper, well-educated labour elsewhere in the world will have an impact on suppressing wages here over time.
We are already seeing this in the expatriate market: why pay an expensive European or American expat when you can get an equally experienced, but cheaper one from Asia, Africa or South America?
Ten or 15 years ago, we were talking about how executive pay was being driven up because of global market demand. Perhaps now we will see pay packages being driven slowly downwards because of the global market.
Either way, it is hard to see an immediate change to low pay increases for the average worker.
Given this new world order of pay, how do we as HR, benefits and reward managers react?
We need to put on our collective thinking caps and be creative in how we manage our organisations through this transition. Whipping managers to stick to set pay budgets is the simplistic option. Finding a way to keep managers and staff engaged, inspired and productive in a low-increase environment is far tougher.
But this is where we, as reward experts, should be stepping up and setting an example.
And if you want to hear ideas on this topic, join us at the Pay Debates at Employee Benefits Live (no need to book, just drop in). We will not have all the answers, but at least we can stimulate debate.