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Real-term pay falls for sixth month in a row

British workers have now been squeezed by six months of falling real-term wages, official figures show.

Average weekly earnings excluding bonuses rose by 2.1% in the three months to August, according to the Office for National Statistics (ONS) – well below the rise in the cost of living.

It meant that real pay – which takes account of the effect of inflation on spending power – was 0.4% lower over the period, extending a decline in this measure to six months.

On a brighter note, unemployment continued to fall over the latest three-month period, dropping by 52,000 to 1.44 million.

Meanwhile, the unemployment rate remained unchanged at 4.3%, its lowest level since 1975.

There were 32.1 million people in work, a rise of 94,000 over the period – and the ONS said employment growth was driven mainly by women.

But the wage data highlighted the continued squeeze on household incomes, a day after the ONS reported that inflation last month rose to 3%, its highest level in more than five years.

Living standards are still struggling to recover from the aftermath of the financial crisis, which saw real-term pay decline for an extended period from 2009 to 2014..

The latest pay figure – which was slightly higher than expected, though lower than in the three months to July – looks unlikely to derail expectations that the Bank of England will hike interest rates next month.

A street cleaner passes the Jobcentre Plus office on January 18, 2012 in Bath
Image:The unemployment rate remains at the lowest level since 1975

But the pound, trading at just under $ 1.32 against the US dollar, slipped back a little, as some economists said there would need to be stronger signs of wage growth if the Bank wants to go for another increase in the new year.

James Smith, economist at ING Bank, said: “We don’t expect wage growth to go much above 2.1%/2.2% this summer.”

TUC general secretary Frances O’Grady – who is calling for the Chancellor to ditch the cap on many public sector workers’ earnings – said: “Pay packets are taking a hammering.

“This is the sixth month in a row that prices have risen faster than wages. Britain desperately needs a pay rise.”

But employment minister Damian Hinds highlighted the improvement in numbers of people in work.

He said: “Our economy is helping to create full-time, permanent jobs which are giving people across the UK the chance of securing a reliable income.”

Laith Khalaf, senior analyst at Hargreaves Lansdown, said the Bank of England was “caught between a rock and a hard place” as it weighed its next interest rate move amid sluggish economic growth.

He said: “Poor wage growth against a background of rising inflation spells trouble for the UK consumer, and for businesses which rely on consumer spending.

“So far the damage appears to be fairly muted, however, as consumer spending has held up surprisingly well. An interest rate rise could change that.

“Paying off your mortgage comes higher in the pecking order than buying a new iPhone, no matter how good the camera is.

“The Bank of England will be wary of the fragile state of the UK consumer as it mulls its next move on interest rates.”

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