Helen Nugent

Families under further pressure as earnings growth slows

Families under further pressure as earnings growth slows
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There's more doom and gloom for households today as new figures reveal the first decline in real earnings since September 2014.

According to the Office for National Statistics (ONS), earnings growth slowed in the three months to March, at 2.1 per cent, compared to previous data which showed wages, excluding bonuses, grew at 2.2 per cent. This compares to inflation which jumped to 2.7 per cent in April.

Meanwhile, the unemployment rate dropped to 4.6 per cent in the three months to March, and is now at its lowest rate since 1975. It was previously 4.7 per cent. It means that 1.54 million people are currently unemployed.

While some analysts say that the strength of employment is one reason to be optimistic that the slowdown in spending won’t be too severe, others are more pessimistic.

Maike Currie, investment director for personal investing at Fidelity International, said: 'With yesterday’s inflation figures showing CPI at 2.7 per cent and expected to rise even further, prices are likely to outpace wage growth, tightening the squeeze on UK households. As each month rolls by we’ll be getting progressively poorer as the wages we are earning struggle to keep up with the prices of the goods and services we consume. Given that consumer spending remains the backbone of the UK economy, this is bad news for economic growth.

'Many have pointed to wage growth as the ‘missing piece of the puzzle’. While there are more people employed in this country than ever before, the problem is that our wages are increasing at a glacial pace. That’s why we need our savings and investments to work even harder - rising inflation coupled with lower-for-longer interest rates, means savers are losing out in the long term if they’re leaving their money languishing in cash. This matters massively, as workers wait for that elusive pay rise.'

Meanwhile, Ian Kernohan, economist at Royal London Asset Management, said: 'With inflation now above target, real earnings growth has slipped into negative territory. The Bank of England’s [rate-setting] MPC will need to see a distinct improvement in earnings growth, if their latest forecasts are to prove accurate.'

In other earnings news, the Institute for Fiscal Studies says that earnings growth will return but, put simply, any growth is nothing to get excited about.

Dennis de Jong, managing director at UFX.com, commented: 'Alarm bells will be ringing for Britons with wages continuing to fall. This could cause a headache for the government over the standard of living in post-Brexit Britain in the run up to next month’s general election.

'Despite economic officials remaining hopeful about the UK earnings forecast for the remainder of the year and 2018, the Prime Minister will have questions to answer if the slump in wages continues.'

Helen Nugent is Online Money Editor of The Spectator