Average weekly earnings were up by 3.4% in November – the biggest rise since July 2008

The spending power of British workers increased to its highest level in two years in November following the biggest rise in real pay since September 2016.

Average weekly earnings, excluding bonuses, rose by 3.3% on the year, the biggest increase since 2008 and well ahead of inflation, which fell to 2.3% in November.

With bonuses taking average pay to 3.4%, the average worker’s pay increased by 1.1% in real terms.

Business groups welcomed the improvement in real wages after declines in 2017 and the early months of 2018. But the TUC said the rise would do little to help workers still feeling the effects over the past decade “of the longest pay squeeze in 200 years”.

The Office for National Statistics said the number of people in employment continued to rise following an increase of 141,000 to a record high of 32.54 million in the three months to November. The employment rate, which measures the proportion of working age people with a job, hit 75.8%, up from 75.3% a year earlier, the highest since comparable estimates began in 1971.

Britain’s booming jobs market was also reflected in record job vacancies and a shift of 100,000 people over the three months to November into the jobs market who were previously economically inactive. This pushed the unemployment rate back down to 4%, its lowest level since 1975.

However, John Philpott, the director of the Jobs Economist consultancy, said that self-employment accounted for two-thirds (93,000) of the latest rise in employment while job vacancies had remained broadly unchanged in recent months.

“This suggests an element of caution on the part of some employers in the face of prolonged Brexit uncertainty who may for the time being prefer to hire self-employed contractors rather than employees,” he said.

Howard Archer, the chief economic adviser to the EY Item Club, said the increase in earnings growth indicated that the “tight labour market was pushing up pay after suffering a relapse earlier in the year”.

He warned that although employers were increasing pay to recruit staff during a period of skills shortages, workers already in a job were finding it more difficult to secure an inflation-busting rise.

“Employers currently appear to be still only offering modest pay increases for their existing staff. In their December survey of business conditions, the Bank of England’s regional agents reported that pay settlements continued to be slightly higher than a year ago, and remained in a range of 2.5%–3.5%,” he said.

A survey released in November by the Chartered Institute of Personnel and Development indicated that employers planned to increase pay by only 2% over the coming year, the same as three months ago. Other surveys of employers have shown that negotiated pay increases for existing staff have averaged about 2.5%.

Jeremy Thomson-Cook, the chief economist at currency dealer WorldFirst, said the employment figures failed to reflect more recent gloomy forecasts by employers of their prospects.

“Employment in itself is a lagging indicator. It is slow to react to positive or negative changes in the economic cycle so, although these numbers are ostensibly for what happened in November, they are more a representation of what happened in the summer,” he said.

“The summer was a good time for the UK economy and so wage and jobs numbers reflect a time of strong business confidence, heightened productivity and relative political calm. Remember that?”

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He said that without Brexit uncertainty hanging over Britain’s economic future, the Bank of England would be inclined to view the rise in wages as inflationary and respond with higher interest rates. However, he said the Bank was unlikely to move in the near term.

“We do expect inflation to run higher eventually as wage pressures build but, for now, uneasy business sentiment will cap that impulse and will likely do so until Westminster and Brussels agree something more concrete than the simple need for a deal by 29 March,” he said.

“As it stands, however, given these numbers and in the event of a deal on Brexit and a smooth exit from the EU at the end of March, the Bank of England could very easily raise interest rates in May.”