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Squeeze on households tightens as real wages fall

Joanna Faith
Written By:
Joanna Faith
Posted:
Updated:
17/05/2017

Real wages in Britain are falling at the fastest rate in three years, according to figures from the Office for National Statistics (ONS).

 

Wage growth excluding bonuses came in at 2.1% in the three months to March compared to the same period last year – and fell 0.2% in real terms during that period.

Figures released by the ONS yesterday (16 May) show inflation jumped to a higher-than-expected 2.7% in April, the highest rate since September 2013.

Ben Brettell, senior economist at Hargreaves Lansdown, said: “With inflation forecast to carry on rising – Bank of England policymakers predict inflation will peak at a little below 3% in the fourth quarter – household budgets look certain to be squeezed further in the coming months.

“The economy has surprised on the upside since last summer’s referendum, powered by a resilient consumer, but it looks like households are now starting to feel the pinch from the current bout of inflation with GDP growth slowing to 0.3% in the first quarter of this year.”

Despite relatively weak wage growth, the UK labour market looks fairly robust for now.

The unemployment rate fell to 4.6%, its lowest level since 1975, and employment reached a new record high.

There were 1.54 million unemployed people in the January to March period, 53,000 fewer than for October to December 2016 and 152,000 fewer than for a year earlier, according to the ONS.

Maike Currie, investment director at Fidelity International, said: “Many have pointed to wage growth as the ‘missing piece of the puzzle’. While there are more people employed in this country than ever before, the problem is that our wages are increasing at a glacial pace.

“That’s why we need our savings and investments to work even harder – rising inflation coupled with lower-for-longer interest rates, means savers are losing out in the long term if they’re leaving their money languishing in cash. This matters massively, as workers wait for that elusive pay rise.”

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