Falling inflation signals end of wage squeeze

REAL wages for average UK workers look set to finally begin rising once again, with earnings ticking upwards and inflation down to the lowest level in more than four years.

The consumer price index (CPI) rose by only 1.7 per cent in the year to February, according to the Office for National Statistics (ONS) yesterday.

Inflation had been consistently above the two per cent since the beginning of 2010, but now seems to be on a downward trend.

Total pay in the private sector rose by 1.7 per cent in the year to January. Finance and business services earnings actually dropped by 0.2 per cent during the year, but construction, manufacturing and retail earnings all swelled by more than three per cent in the same period.

CPI peaked at 5.2 per cent following the crisis, in September 2011, and hit a 2013 high of 2.9 per cent in June. Since then it has moderated, slipping back to the Bank of England’s two per cent target in December.

“Inflation will slow even further next month. Strong base effects from petrol prices will pull headline inflation down” said Martin Beck, senior economic adviser to EY’s Item Club.

Capital Economics’ Samuel Tombs added that UK inflation could fall to as low as one per cent by the end of the year.