Wage rises in Britain have failed to keep pace with inflation, according to the latest official figures, despite a buoyant labour market that saw unemployment fall to its lowest level since 1975.
Average earnings increased by 2.1% in the three months to July compared with a 2.6% increase in inflation in July that left workers suffering a 0.4% real-terms fall in the value of their pay packets.
Wages growth had started to accelerate in April following a steep drop to 1.8% growth in March, but the latest figures appear to show that the recovery has stalled and could go into reverse after inflation soared to 2.9% in August.
The jobless rate fell to 4.3% from 4.4%, the lowest figure for 42 years. Analysts said the burgeoning gig economy, which has seen self-employment climb to 15% of the workforce, was behind the rise in jobs, leading to only modest rises in pay.
Ed Monk, an associate director at Fidelity International, said spiralling inflation meant “UK households will continue to have their finances stretched to breaking point”.
Jeremy Cook, the chief economist at the currency firm WorldFirst, said there was “little to celebrate” when people were “only getting poorer due to wages that can’t keep up with inflation”.
Cook blamed Brexit fears that hang over businesses and cost-cutting that followed the fall in the pound and consequent rise in import costs.
Data from the Office for National Statistics showed that the hospitality sector continued to employ more people while the category covering workers in professional and scientific jobs declined.
Overall, the employment rate, which measures the proportion of people aged from 16 to 64 who were in work, climbed to 75.3%, the highest since comparable records began in 1971.
The number of people in work rose by 181,000 in the three months to April compared with the three months to July, while there were 1.46mn unemployed people – 75,000 fewer than for February to April 2017.
Vacancies remain slightly below a peak earlier in the year of 784,000, but at 774,000 are well above the highest levels seen before the 2008 financial crash when they reached a high of 704,000.
Analysts have warned of a worsening employment picture after the economy struggled to a 0.2% GDP growth rate in the first quarter and 0.3% in the second. Employers were expected to halt recruitment, if not lay off workers, in response to slowing consumer spending and weak business investment.
The Bank of England is not forecast to increase interest rates today when its monetary policy committee meets, though it is likely to warn that rising inflation might need to be calmed with a hike in credit costs should it persist into next year.
Ian Stewart, the chief economist at Deloitte, said: “Job creation is a huge UK success story. Despite Brexit uncertainties and slower growth, the UK continues to generate ever-lower unemployment and ever more jobs.
“But the recession, and its aftermath, has weakened the link between unemployment and wages. In the past this degree of tightness in the jobs market would be pushing wages higher. Instead earnings growth has flatlined in the last couple of years.”
Samuel Tombs, the chief UK economist at Pantheon Macroeconomics, said the latest labour market data was, on balance, a setback for the hawks on the MPC arguing for higher interest rates.
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