Pay squeeze bites... but jobs boom

WORKERS are being hit by the tightest pay squeeze in almost three years while a record number of people are in employment.

The spending power of wages is being eroded as salary growth slows and inflation rises.

Average weekly earnings fell by 0.6 per cent in the three months to April compared to the same period last year, the Office for National Statistics said. Including bonuses real wages fell by 0.4 per cent.

But economists stress that many household incomes will have risen sharply as the number of people in work continues to increase.

The number of people with jobs rose 372,000 over the year to another record high of just under 32million, with the employment rate remaining at 74.8 per cent – the joint highest since records began in 1971.

But workers are being hit by rising inflation – which the ONS revealed on Tuesday hit a four-year high of 2.9 per cent in April.

The cost of living has jumped as the weak pound has pushed up the cost of importing goods such as food and clothes, while making foreign holidays more expensive.

Ben Brettell, senior economist at Hargreaves Lansdown said: ‘Households are being squeezed from both directions, with inflation rising faster than expected and wages rising more slowly.

‘This doesn’t bode well for economic growth. The UK economy is heavily reliant on the consumer and falling real incomes will eventually translate into lower retail sales.’

Neil Carberry of the CBI said: ‘ Decent employment growth remains an encouraging feature of the UK economy, underlining the importance of maintaining a flexible and fair labour market.

‘But weak pay growth, against the backdrop of rising inflation, means that people’s pay packets won’t stretch as far, which is already hitting living standards.’

Economists believe inflation is set to hit 3 per cent in the coming months. Others say the pay squeeze will ease next year as wages pick up and inflation falls back.