Families squeezed to brink as inflation beats wages but unemployment sinks to 42-year low
The unemployment rate is now at just 4.3 per cent, its lowest level since 1975, as the number of people in work in the period increased by around 181,000 in the three months to July, compared to the three months prior, according to the Office for National Statistics (ONS).
Weekly earnings for employees grew by 2.1 per cent.
But inflation in July at 2.6 per cent meant that overall income fell by 0.4 per cent in real terms.
The cost of living surged to 2.9 per cent in August, meaning that the household squeeze is likely get even worse.
The Bank of England could raise interest rates to help bring inflation down.
However, policymakers may prefer to stay in wait and see mode, as it forecasts wage growth will rise to three per cent next year, while inflation falls back towards the two per cent.
Ed Monk, associate director for personal investing at Fidelity International, said: “Yesterday’s UK CPI figures showed that inflation had jumped to 2.9 per cent which means that wages are falling further behind the price we pay for goods and services.
“As a result UK households will continue to have their finances stretched to breaking point.
“Lagging wages makes it more likely the Bank of England will look through rising inflation when it decides on interest rates this week.
“Prices are rising above target, which creates the case for raising rates, but today’s wage data suggests all is still not right in the economy.”
Ian Stewart, chief economist at Deloitte, added: “Job creation is a huge UK success story.
“Despite Brexit uncertainties and slower growth, the UK continues to generate ever lower unemployment and ever more jobs.
“But the recession, and its aftermath, has weakened the link between unemployment and wages.
“In the past this degree of tightness in the jobs market would be pushing wages higher. Instead earnings growth has flat lined in the last couple of years.”