Wages have risen at the fastest pace in almost ten years, easing the pressure on UK households.
Earnings, excluding bonuses, increased by 3.1 per cent in the three months to August compared with a year earlier, according to the Office for National Statistics.
The rise outstripped the growth of 2.9 per cent in the three months to July and the 2.6 per cent forecast by economists.
Hopes were raised last week that a “lost decade” of pay growth after the financial crisis was finally over when Andy Haldane, chief economist at the Bank of England, said that there was “more compelling evidence of a new dawn breaking for pay growth, albeit with the light filtering through only slowly”.
The earnings data came alongside jobs figures which showed that the unemployment rate held steady at 4 per cent, a four-decade low. The overall figure fell by 47,000 to about 1.36 million. Economists said the “tightness” in the labour market was finally creating pressure to increase wages.
Thomas Pugh, UK economist at Capital Economics, said: “Surveys of wage growth suggest that it will sustain a pace of about 3 per cent year-on-year over the remainder of 2018.”
However, the boost to households’ spending power was tempered by inflation. The consumer price index measure of inflation was 2.7 per cent in the three months to August. Figures for September are released today.
Experts also said the pay growth was likely to be concentrated among new starters, key staff and recipients of the national living wage, unless productivity growth improved. The CBI said that weak productivity remained the “UK economy’s Achilles heel”.
Mr Pugh added: “Nonetheless, we expect real wage growth to increase over the next year which should lift consumer spending and feed through into an acceleration in GDP.” The Resolution Foundation, an economics think tank, said inflation meant that real pay growth remained at 0.7 per cent compared with a “norm of over 2 per cent before the financial crisis”.
Suren Thiru, head of economics at the British Chambers of Commerce, said: “Achieving a meaningful improvement in wage growth will be an uphill struggle unless the underlying issues that continue to limit pay settlements are tackled — notably sluggish productivity, considerable underemployment and high upfront costs for businesses.”
Mr Thiru also said that with the number of job vacancies close to record highs, there were signs of a skills shortage. “Companies are reporting that recruitment difficulties have reached critical levels, which coupled with Brexit uncertainty is increasingly putting employers off trying to hire, and if sustained could increasingly weigh on jobs growth.”