Pay squeeze intensifies although employment levels reach record high

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The pay squeeze on British households has intensified with wage growth falling further behind inflation, new figures show.

The Office for National Statistics (ONS) said average earnings grew by 1.8% in the year to May, down by 0.3% on the previous month.

Inflation marched to its highest level in nearly four years at 2.9% in May, with the Bank of England expecting the cost of living to peak at 3% by the autumn.

However, the jobs market remained a bright spot for the UK economy, as employment reached another record high.

The number of people in work climbed to around 32 million, a rise of 324,000 compared with last year and the largest total since records began in 1971.

The employment rate rose by 0.3% on the quarter to a record high of 74.9%.

Unemployment fell by 64,000 to 1.49 million in the three months to May, the lowest level since 2005.

The unemployment rate also dropped by 0.2% on the quarter to 4.5%.

Matt Hughes, ONS senior statistician, said "The general picture is little changed on last month, with the overall employment rate and that for women both at record highs, the inactivity rate at a joint record low and the unemployment rate falling to its lowest since early summer 1975.

"Despite the strong jobs picture, however, there has been another real-terms fall in total earnings, with the growth in weekly wages low and inflation still rising."

Soaring inflation triggered by the Brexit-hit pound has put household spending power under sustained pressure since the start of the year, causing disposable incomes to fall and the amount spent on credit cards to increase.

The rate at which people are setting aside money for savings has also sunk to record lows, suggesting consumers are raiding their nest eggs in order to keep spending.

Focusing on employment, the ONS said those classed as economically inactive fell by 57,000 in the three months to May to 8.83 million.

The number of people on the so-called claimant count increased by 6,000 last month to 829,000.

Howard Archer, EY ITEM Club's chief economic adviser, said the "anaemic" earnings growth would give Bank of England policymakers a reason for holding back on an interest rate rise.

He said: "Worryingly for consumers, higher employment is still not translating into higher pay as inflation ratchets up further.

"Thus the squeeze on consumers continues to intensify, with obvious negative implications for personal expenditure.

"Anaemic earnings growth is a key factor arguing against any near-term Bank of England interest rate hike, and the latest data keep this argument firmly in place, along with recent largely disappointing UK economic developments."

TUC general secretary Frances O'Grady said the onus was now on the Government to take action to boost wages across the UK.

She said: "Three months of falling pay is three months too many.

"The clock is ticking whilst workers wait for the Government to act.

"Ministers must set out a plan to get real wages rising across the public and the private sectors.

"They should start by scrapping the unfair pay restrictions on nurses, midwives and other public sector workers.

"And the minimum wage must be raised to £10 as quickly as possible."

Helen Barnard, head of analysis at the Joseph Rowntree Foundation (JRF), said: "Britain's employment has climbed ever higher and it is encouraging to see more people in work.

"Yet the number of people struggling to make ends meet despite being in work has also increased.

"In real terms earnings are no better than they were 12 years ago: total pay in real terms is the same as it was in August 2005.

"With benefits and tax credits frozen, there is little respite for families just about managing.

"Some 3.8 million workers are trapped in poverty, many with few qualifications and precious little opportunity to retrain."