TUC urges government to intervene as households come under pressure despite lowest unemployment since 1975

This article is more than 3 years old

This article is more than 3 years old

UK consumers are suffering a sustained fall in living standards as real pay fell again in the three months to May, piling more pressure on cash-strapped households.

Regular pay adjusted to account for the impact of inflation fell by 0.5% year on year over the period, shrinking family incomes and signalling a weaker outlook for consumer spending.

It followed a 0.6% drop in real pay in the three months to April, and a 0.4% fall in the previous three months, according to figures from the Office for National Statistics.

UK unemployment rate hits lowest since 1975, but real wages keep falling - business live Read more

Real pay fell despite a surprise drop in the unemployment rate from 4.6% to 4.5%, which was the lowest since May to July 1975. The employment rate rose to 74.9%, the highest since comparable records began in 1971.

The TUC general secretary, Frances O’Grady, said the government must intervene to address the pay squeeze. “Three months of falling pay is three months too many. The clock is ticking while workers wait for the government to act,” she said.

“Ministers must set out a plan to get real wages rising across the public and the private sectors. They should start by scrapping the unfair pay restrictions on nurses, midwives and other public sector workers. And the minimum wage must be raised to £10 as quickly as possible.”

Damian Hinds, the employment minister, focused on the strong employment figures, describing them as “another reminder that our strong economy is giving record numbers of people the chance to find and stay in work”.

The prolonged drop in real wages reflects the rising pressure on household budgets as prices rise at a faster rate than pay.

The ONS said that before inflation, regular pay growth excluding bonuses picked up slightly to 2% year on year in the three months to May, from 1.8% in the three months to April.

However, that was still well below inflation, which hit a four-year high of 2.9% in May. Inflation has risen rapidly since the Brexit vote last June triggered a sharp drop in the value of the pound. A weaker pound pushes up the price of goods imported from abroad, feeding through to higher shop prices.

John Hawksworth, chief economist at PwC, said it was a striking point of the modern economy that wage growth was so weak despite low unemployment.

“In the 1970s or 1980s such low unemployment, combined with inflation rising towards 3%, could have set off a wage-price spiral.

“Real earnings growth remains deep in negative territory and this seems unlikely to change any time soon. This will dampen consumer spending power, though the continued strength of the jobs market should prevent the recent slowdown in the economy turning into a recession.”

The ONS has calculated that adjusted for inflation, UK employees are now earning £15 less a week after tax and deductions than they were in March 2008, six months before the collapse of Lehman Brothers and the global financial crisis.

Ian Kernohan, an economist at Royal London Asset Management, said the Bank of England was unlikely to raise interest rates at next month’s policy meeting given the weakness of pay growth.

“Inflation is now above the Bank’s [2%] target level and real earnings growth has slipped into negative territory,” he said.

“This is having a negative impact on household spending. With uncertainty gathering over the Brexit negotiations, the Bank of England’s monetary policy committee would need to see a distinct improvement in earnings growth towards 3% and above, to be in a position to raise interest rates.”