UK wage rises lag below inflation as households feel impact of pound sterling slump post-Brexit vote

Wage rises are still lagging well below the rate of inflation as households continue to feel the impact of the post-Brexit vote slump in sterling.

Official statistics show that average annual total wage growth in the three months to July was just 2.1 per cent, unchanged on the last reading and below expectations in the City of London of a strengthening to 2.3 per cent.

The Office for National Statistics reported on Tuesday that the inflation rate jumped to 2.9 per cent in August, driven higher by the 13 per cent fall in sterling since the June 2016 referendum.

In the public sector, where workers have been threatening strike action over the Government’s pay cap, average wages were up just 1.5 per cent over the period.

Sterling eased sharply by around 0.4 per cent to $1.3289 in the wake of the wages data, as traders moved lowered bets on the Bank of England raising interest rates on Thursday.

The Bank’s Monetary Policy Committee (MPC) has said it is monitoring wages closely for signs of building inflationary pressure.

“The continued absence of a pick-up in wage growth is likely to keep the doves in the majority [on the MPC]. And with inflation reaching 2.9 per cent in August, the squeeze on households’ real incomes probably intensified,” said Andrew Wishart of Capital Economics.

open image in gallery

However, Tuesday’s data also showed job creation continued robustly in the three months to July, with the numbers in employment growing by 181,000 on the previous quarter.

Of this total, 96,000 were full-time and 86,000 were part-time.

The age 16-64 employment rate hit 75.3 per cent, a new record high.

The ONS also reported that the official jobless rate fell to 4.3 per cent, down from 4.4 per cent previously, and a new 42-year low.

“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 flat lined in the last couple of years,” said Ian Stewart, economist at Deloitte.

Stephen Clarke of the Resolution Foundation think tank warned that the squeeze on households was likely to intensify.

“With the pace of inflation increasing again there is a risk that the pay squeeze could get worse before it starts to gets better,” he said.

“The scale of our long-standing pay disaster means that wages are still £16 a week lower than their 2008 level. Unless things improve we could be looking at 15 years of lost pay growth.”