Wages continue to lag behind inflation

Average earnings continued to lag behind inflation in the three months to June, official figures show.

Wages grew by 2.1% compared with the same period last year, the Office for National Statistics said.

This is a slight increase on the previous March to May quarter when the ONS revised down its preliminary figure to 1.9%.

However, once inflation is taken into account, total pay in real terms sank by 0.5% both including and excluding bonuses.

It comes a day after official data showed inflation remained unchanged in July at 2.6%. Economists had expected it to climb to 2.7%.

The figures are significant as they show a continuation in the squeeze on living costs, largely thanks to the collapse in the pound following the Brexit vote, which makes imported goods more expensive.

Inflation remained static because increased food, clothing and electricity costs were offset by a drop in fuel prices.

As pay growth picked up pace, employment reached an all-time high, the ONS said.

The number of people in work rose by 125,000 to 32.07 million in the three months to June, with the employment rate climbing by 0.3% to a record 75.1%.

Unemployment fell by 57,000 to 1.48 million during the same period - a 42-year low - while the claimant count dropped by 4,200 in July to 807,800, figures showed.

Analysts said the date was unlikely to persuade the Bank of England to finally put up interest rates.

Howard Archer, chief economic adviser to the EY Item Club, said: "Worryingly for consumers, higher employment is still not translating into higher pay as inflation hovers close to 3%.

"Thus the squeeze on consumers remains appreciable, 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."

Russ Mould, investment director at AJ Bell, said: "The weak rate of wage increases is baffling economists and central bankers alike, especially since the employment rate stands at 75.1%, the highest level since records began.

"Mark Carney, Governor of the Bank of England, has frequently cited accelerating wage growth as a possible trigger for the long-awaited increase in UK base rates but today's figures are hardly likely to persuade the Monetary Policy Committee that the UK economy is overheating and in need of higher borrowing costs."

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