FINANCIAL pressure on British households is intensifying, with official figures revealing the worst real-terms fall in earnings since summer 2014, and Scottish Chambers of Commerce has warned low productivity will likely constrain future pay settlements.

Royal Bank of Scotland chief economist Stephen Boyle cautioned that consumers would have to tighten their belts, given that taking on debt or running down savings to sustain spending had their limits.

And the Scottish Retail Consortium (SRC) called upon the Scottish Government to relieve the pressure on consumers by considering bringing forward proposals for a new zero-rate income tax band, effectively increasing the personal allowance.

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Figures yesterday from the Office for National Statistics showed average weekly earnings in Great Britain, excluding bonuses, were in the three months to April down by 0.6 per cent on the same period of last year. This was the sharpest year-on-year fall in regular pay since June to August 2014.

In nominal, rather than inflation-adjusted, terms, average earnings in the three months to April were up by 1.7 per cent on a year earlier, excluding bonuses. This was even slower than the 1.8 per cent year-on-year growth in the January to March period.

Earnings are falling significantly in real terms because of the surge in inflation arising from sterling weakness following the UK electorate’s vote last June to leave the European Union.

ONS figures on Tuesday revealed annual UK consumer prices index inflation had continued to surge, rising from 2.7 per cent in April to 2.9 per cent in May. It was at 0.3 per cent in May last year, ahead of the Brexit vote.

John Hawksworth, chief economist at accountancy firm PwC, said of the pay squeeze: “The cost of Brexit to people’s living standards due to the fall in the pound is becoming ever more apparent.”

The Scottish Trades Union Congress warned the real-terms fall in pay would “only add to the already rising poverty rate in Scotland”.

Mr Boyle said of the pay statistics: “This represents…an intensification of the squeeze on spending power that has been caused by the recent rapid acceleration in inflation, itself a consequence of the depreciation of sterling.”

Citing a slowdown of UK growth to just 0.2 per cent during the first quarter, he added: “The effects of the squeeze were evident in the GDP numbers.”

He noted UK employment in the February to April period, at nearly 32 million on the International Labour Organisation measure, was up by 109,000 on the preceding quarter.

Mr Boyle said: “The positive news…is that, while pay growth is weak, more people are earning, which provides a partial and welcome mitigant.”

He added: “This will be the story that dominates UK economic prospects well into 2018: falling real pay that is partly offset by higher employment.

“ It leaves people with three options. They can borrow more to sustain spending, as they have been doing, but that has its limits. They can run down their savings, as they have done, but that has its limits. They can tighten their belts and that is what is coming, meaning the most important source of demand in the economy is under pressure.”

Garry Clark, head of Scottish Chambers of Commerce’s economic development intelligence unit, described the real-terms fall in pay as an area of “concern”.

He added: “Low productivity rates dictate that earnings growth may be unlikely to improve significantly over the short term and, with inflation having risen by more than expectations, the pressures on consumer demand, business margins and future business investment continue.”