Pay growth slowdown tightens household squeeze

Pay growth has slowed sharply to a weaker than expected 1.7%, tightening the squeeze on households as inflation turns higher, official figures show.

The Office for National Statistics (ONS) said the figures for the three months to April meant that in real terms, pay - excluding bonuses - fell by 0.6%.

It marked the second month in a row of decline and was the worst for nearly three years.

Meanwhile the jobless total continued to fall, dropping by 50,000 to 1.53 million, while the unemployment rate remained at a 42-year low of 4.6%, the ONS said.

But the weak pay figures illustrate that the money earned by those in work is failing to keep pace with the cost of living.

They come a day after separate figures showed inflation - which has been increasing since Britain voted on 23 June last year to leave the European Union - running at a near four-year high of 2.9% in May.

The latest wage figures showed the weakest growth since October 2014 and the gap between pay rises and inflation has not been larger since August 2014.

ONS senior statistician Matt Hughes said: "Many labour market indicators remain strong, with the employment rate at a joint record high and the inactivity rate at a joint record low since comparable records began in 1971.

"On the other hand, with wage growth continuing to slow and inflation still rising real pay is down on the year."

Britons experienced a long period of falling real terms earnings in the years following the financial crisis before wage growth finally caught up with the cost of living, as inflation dipped, towards the end of 2014.

Now, household finances are under pressure again as the collapse in the pound since the Brexit vote - increasing the cost of imports - helps drive up inflation.

There have already been signs of the squeeze weighing on the wider economy, with retail sales slipping and overall GDP growth slowing to 0.2% in the first quarter of 2017 as consumer-facing industries see a slowdown.

David Gauke, the new Work and Pensions Secretary, hailed "another strong set of record-breaking figures" on employment.

But TUC general secretary Frances O'Grady warned: "Unless this Government gets its act together, we'll soon be in the middle of another cost of living crisis."

Debbie Abrahams, Labour's shadow work and pensions secretary, said: "Too many of Britain's families are struggling to get by."

Stephen Clarke, economics analyst at the Resolution Foundation, said: "The sharp contrast between our terrible record on pay and strong jobs performance shows that the currency-driven inflation we are experiencing is not feeding through into wage pressures and is simply making us all poorer instead."

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: "Firms are responding to rising raw material costs and uncertainty about the economic outlook by doubling down on pay awards."