HOUSEHOLDS in Great Britain are being squeezed by a continuing fall in real wages amid above-target inflation triggered by the pound’s post-Brexit vote fall, official figures have shown, raising further worries over the economic outlook.
News of the continuing fall in real earnings came as figures from the statistical office of the European Union showed the 19-nation eurozone grew at twice the rate of the UK during the second quarter.
The eurozone, and EU as a whole, both achieved quarter-on-quarter growth of 0.6 per cent in the three months to June. Figures published last month by the Office for National Statistics showed UK gross domestic product grew by only 0.3 per cent in the second quarter, with economists citing the drag resulting from the Brexit vote.
ONS figures yesterday showed that, adjusting for inflation, average weekly earnings of employees in Great Britain in the three months to June were down by 0.5 per cent on the same period of last year.
Annual UK consumer prices index inflation was 2.6 per cent in July, ONS data showed on Tuesday. It was 0.3 per cent in May 2016, ahead of the Brexit vote.
Grahame Smith, general secretary of the Scottish Trades Union Congress, said of the real-terms fall in earnings in Great Britain: “With unemployment at record lows, you would expect wages to rise as workers gain greater bargaining power in the labour market. This clearly is not the case. Serious questions about the health of our labour market continue, which underlines the economic illiteracy of Government policies that hold down pay in the current economic context.”
The public sector pay cap has been a central part of the Conservatives’ economic policy since they came to power in 2010.
Seamus Nevin, head of employment and skills policy at the Institute of Directors, said: “One concern is that household incomes continue to be squeezed with a 0.5 per cent fall in real-terms pay. Businesses will feel worried if consumer demand starts to falter as a result of subdued real wage growth”
Howard Archer, chief economic adviser to the EY ITEM Club think-tank, said: “Worryingly for consumers, higher employment is still not translating into higher pay as inflation hovers close to three per cent. Thus the squeeze on consumers remains appreciable, with obvious negative implications for personal expenditure.”
He added that “anaemic earnings growth is a key factor arguing against any near-term Bank of England interest-rate hike”. UK base rates are at a record low of 0.25 per cent.
Separate figures published yesterday by the ONS showed a further fall in UK labour productivity in the second quarter, with output per hour falling 0.1 per cent. This followed a 0.5 per cent tumble in the opening three months of this year.
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