The squeeze on household incomes shows little sign of loosening after official figures revealed pay lagging behind inflation for a third month in a row.
Pay excluding bonuses rose by 2% in the three months to May, according to the Office for National Statistics (ONS), a pick-up on the 1.7% increase seen the month before.
But with inflation turning higher, there was no increase for real term wages, which fell by 0.5% – though this was a slight improvement on the 0.6% fall seen in the three months to April.
The data revealed a more positive picture on the overall jobs market, as the unemployment rate fell to a new 42-year low of 4.5%.
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Meanwhile the number of unemployed fell by 64,000 over the three months to 1.49 million.
Employment minister Damian Hinds said: “These latest statistics are another reminder that our strong economy is giving record numbers of people the chance to find and stay in work.”
But ONS senior statistician Matt Hughes said: “Despite the strong jobs picture, there has been another real-terms fall in earnings, with growth in weekly wages low and inflation still rising.”
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TUC general secretary Frances O’Grady said: “Three months of falling pay is three months too many.
“Ministers must set out a plan to get real wages rising across the public and the private sectors.”
Inflation climbed to a near four-year high of 2.9% in May.
The upturn in the cost of living has been driven by the collapse in the pound after the Brexit vote, which makes imports more expensive.
It has resulted in real terms wages going backwards for the first time since 2014 – when they emerged from a five-year period of decline following the financial crisis.
Ben Brettell, senior economist at Hargreaves Lansdown, said: “Shrinking real pay doesn’t bode well for economic growth – the UK economy is heavily reliant on the consumer and falling real incomes should eventually translate into lower retail sales.”
The Bank of England has been watching wage growth closely to gauge whether the increase in inflation is creating longer-lasting pressure on prices that may need to be addressed by hiking interest rates.
But the Bank’s deputy governor Ben Broadbent said in an interview on Wednesday that he was not yet ready to vote for higher rates, dampening expectations that policy makers might lift them next month.
Alan Clarke, head of European fixed income strategy at Scotiabank, said the strong employment data would give ammunition to “hawks” at the Bank who want to raise rates while the wage data seemed to favour “doves” who want to leave rates on hold.
Source: SKY News