Your Pay Rose 2%. Did You Get a Raise?
Not necessarily. If prices rose faster than your pay did, you can be earning "more" in cash terms while actually being able to afford less. This is the difference between nominal and real growth.
Worked example
Your salary rises from £30,000 to £30,600 — a 2% pay rise. Over the same year, inflation runs at 3%.
To buy the same basket of goods that cost £30,000 a year ago, you'd now need about £30,900. You only have £30,600. In cash ("nominal") terms you earned more — but in "real" terms, adjusted for what that money actually buys, you're roughly 1% worse off than before.
Nominal figures are the raw numbers — the actual pounds and pence in your pay packet, or the headline percentage a company reports its revenue grew by. Real figures adjust those raw numbers for inflation, showing what actually changed in terms of purchasing power.
This distinction matters constantly in economic reporting. "Wages grew 4%" sounds positive, but if inflation was running at 6% over the same period, real wages actually fell — workers could afford less, not more, despite the larger number on their payslip. The same logic applies to government spending increases, company profit growth, GDP growth, and pension values: the nominal figure alone rarely tells you whether someone is actually better or worse off.
A simple rule of thumb: real growth ≈ nominal growth − inflation. It's an approximation rather than an exact formula, but it's close enough to sanity-check most headline figures you'll come across.
In the news
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