Interest rate rise looms as wages increase more than expected in three months ending in January

Higher interest rates from the Bank of England have moved a decisive step closer after the latest official figures showed earnings growing at their fastest rate in more than two years.

The latest snapshot of the labour market from the Office for National Statistics showed that a record high level of employment and a drift from part-time to full-time work pushed up wages in the three months ending in January.

With inflation falling, the ONS said the squeeze on living standards that had dampened consumer spending over the past year had come to an end if bonuses were included in the yardstick used to calculate earnings.

Threadneedle Street’s monetary policy committee is meeting to discuss interest rates this week and the prospect of an increase in borrowing costs pushed up the pound on foreign exchanges. An increase in May is thought more likely than one this week.

Esther McVey, the work and pensions secretary, said: “Getting a job means securing an income for a family and the chance to build a better future. That’s why up and down the country we are doing all we can to help people into work.”

But the TUC warned the squeeze on living standards was not over. The trade union body’s general secretary, Frances O’Grady, said: “It’s nine years since the recession ended, but wages are still falling and workers’ living standards are worse than a decade ago.

“The great pay squeeze is a long-term crisis. We need major changes to get the economy working again for working people.”

The ONS said that including bonuses, average earnings in the three months to January were 2.8% higher than in the same quarter a year earlier, the highest since September 2015. Excluding bonuses, earnings were 2.6% higher.



UK wage growth accelerates as employment rate hits record high - business live Read more

The annual inflation rate has been coming down from a peak of 3.1% last autumn and stood at 2.7% in February.

“Latest estimates show that average weekly earnings for employees in Great Britain in real terms – that is, adjusted for price inflation – fell by 0.2% excluding bonuses, but were unchanged including bonuses, compared with a year earlier,” the ONS said.

It added that both employment and unemployment rose in the three months ending in January, with the labour market not quite able to absorb a big increase in the number of people entering the workforce after being classified as economically inactive.

The number of people in work rose by 168,000 to 32.25 million, pushing up the employment rate to 75.3%, the joint highest since comparable records began in 1971.

Unemployment on the internationally agreed measure rose by 24,000 in the three months to January, but the jobless rate remained unchanged on the previous quarter at 4.3%. Job vacancies were up 10,000 to 816,000 in the latest three months.

Stephen Clarke, a senior economic analyst at the Resolution Foundation thinktank, said: “Britain’s 12-month pay squeeze has finally ended, though public sector workers will have to wait until new pay settlements are agreed across the NHS, schools, the police and other parts of the public sector.

“While it’s a relief that pay packets are no longer shrinking, the outlook for anaemic pay growth remains a huge living standards concern. Average pay is still lower than it was a decade ago, and an entire generation of young workers are still yet to experience the 3-4% pay rises that were once the norm.”

Sign up to the daily Business Today email or follow Guardian Business on Twitter at @BusinessDesk

Separate ONS figures showed that the government borrowed £1.3bn in February to bridge the gap between tax receipts and spending, a £2.5bn increase on the same month in 2017, when there was a £1.2bn surplus.



The ONS also revised up its estimate of borrowing for the first 10 months of the 2017-18 financial year by £2.5bn as a result of higher spending and weaker receipts. With one month of the year still to go, borrowing stood at £41.4bn – £2.5bn lower than a year ago.