Households crushed by huge drop in real wages

AVERAGE earnings grew by a paltry 0.4 per cent on the year this March, the smallest rise on record according to official figures published yesterday.

At the same time prices jumped 2.8 per cent on the consumer price measure and 3.3 per cent on the retail price, hitting households hard as pay packets no longer stretch as far.

The picture is even bleaker for finance and business services workers – including bonuses, their weekly pay plunged 3.8 per cent on the year, even before inflation is taken into account.

Earnings growth for government employees has been cut from two per cent in January to 1.2 per cent, but still remains considerably higher than private sector increases, fuelling fears that the coalition’s pay freeze remains ineffective.

“The weakness of pay growth relative to inflation, currently running at 2.8 per cent, will be a concern to the Bank of England, as squeezed incomes will limit economic growth,” said Chris Williamson from Markit.

After accounting for inflation, real wages have been falling constantly since 2009, as workers readjust to a smaller economy.

Meanwhile the number of unemployed people in the UK ticked up 0.6 per cent from the previous quarter, but was still down 3.5 per cent on the previous year. There was also a decline of 7,300 in the claimant count, which measures the number of people who are in receipt of jobseeker’s allowance.

Older workers and those in part-time jobs were the predominant driving forces behind the Spring rise in joblessness.

The youth unemployment rate remains at 18.6 per cent, and full-time employment was stable.

Employment also declined on the quarter, bucking the trend of the last year, which had seen 700,000 more people working.

“These figures confirm the labour market is running out of steam,” said economist Nida Ali from the Ernst and Young Item Club.

“This picture is more consistent with the fragile economic environment and will probably continue over the coming months.”