Household incomes hit as wages rise at slower pace than inflation

Mike Currie at Fidelity International said prices are likely to continue to outpace wage growth, tightening the squeeze on household budgets.

The unemployment rate in the January-March period unexpectedly fell to its lowest level in almost 42 years at 4.6 percent.

"As inflation begins to fall back next year as the upward pressure from the drop in the pound starts to fade, we think that real wages will begin to rise again".

Employment has increased by 122,000 to nearly 32 million, the highest since records began in 1971, reported the ONS.

"But the fact that wage growth is not keeping up with price inflation does not bode well for consumer spending - which has been a key factor contributing to United Kingdom economic growth in recent years".

Unemployment fell to its lowest rate in more than four decades at 4.6 percent.

In April, the United Kingdom's annual inflation rate was at around 2.7% higher than the previous month's 2.3% according to data from the Office for National Statistics which was the fastest inflation rate seen since September 2013 but was in accordance to Wall Street analysts forecasts where consumer prices have risen 0.5% beating most market estimates.

That meant pay, adjusted for inflation, fell by 0.2 per cent in the first three months of the year, the first fall since the third quarter of 2014.

The figures come a day after official data showed inflation had risen further, to 2.7%, in April.

"An astonishing rise in United Kingdom employment isn't enough to mask the fall in real wages", James Smith at ING told the Financial Times.

"These latest figures contain mixed news for future United Kingdom economic prospects".

There was also a big rise in the cost of clothes and shoes, most of which are made overseas.

Andrew Hood, senior research economist at the Institute for Fiscal Studies, said: "The big change compared with a year ago is not weaker growth in people's cash earnings but higher inflation". When taken together with yesterday's acceleration in inflation to 2.7 per cent, real wages are now falling. Non-UK nationals represent 11.1 per cent of the workforceThe number of non-UK nationals working in the UK increased by 207,000 to a record 3.5 million in the first quarter, representing 11.1 per cent of the workforce.

Some experts though are not so optimistic on the future wage growth.

  • Zachary Reyes