Living standards fall thanks to wage crunch – which could explain why the Tories lost their majority despite record employment
Wages haven't kept up with inflation hikes
BRITS are suffering one of the biggest pay squeezes for 40 YEARS as companies slam the brakes on wage hikes.
The Office for National Statistics revealed average earnings across the UK rose by just 1.7 per cent in the three months to April - which could explain why the Tories lost their majority despite record employment.
Today inflation was revealed to have hit 2.9 per cent in May.
The Resolution think tank said that aside from the credit crisis Brits were now enduring their biggest pay squeeze since the late Seventies.
Taking into account the effects of inflation, ‘real’ pay is dropping by 0.6 per cent and 1.3 per cent in the public sector.
And earlier this week we saw the first fall in consumer spending for four years - another sign that Brits could be about to tighten the purse-strings and stop splashing the cash.
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Stephen Clarke, economics analyst at Resolution, said: “Britain is in the middle of a pay squeeze that is far deeper than anyone expected.
“What’s more concerning is that while inflation continues to rise, wage growth is actually weakening and making the household income squeeze even tighter.”
Matt Hughes, senior statistician at the ONS, 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.
"On the other hand, with wage growth continuing to slow and inflation still rising, real pay is down on the year. This is now the case whether or not bonuses are taken into account."
How inflation and average pay has changed over time
Month - Inflation (CPI) - Pay (average total pay increase)
Dec - 1.6% - 2.6%
Jan - 1.8% - 2.4%
Feb - 2.3% - 2.0%
March - 2.3% - 1.8%
April – 2.7% - 1.7%
May – 2.9% - n/a
The blow came as jobs figures showed employment rose by 109,000 to 31.95 million and unemployment fell by 50,000 to 1.53 million.
New Work and Pensions Secretary David Gauke said: “This is yet another strong set of record breaking figures with employment up and unemployment down, fuelled by full-time opportunities.
“This is good news for families we continue to build a stronger, fairer Britain.”
The Tories have long hailed their record on getting more people into work - but a fall in living standards could have swayed more people to turn to the Labour Party in last week's election.
But Shadow Chancellor John McDonnell said today that young people in particular were suffering from a widening pay gap.
"After seven wasted years of Tory economic failure with real wages falling behind prices, and living standards being squeezed, working people in our country simply cannot afford more of the same from Theresa May and her party," he said.
And George Buckley, chief UK economist at city stockbroker Nomura said: “The focus is firmly on the earnings data.
“The fall in households’ real wages is accelerating and this is likely to put downward pressure on consumer spending going forward.”