Average earnings of UK workers are now no higher than they were in February 2006, official figures reveal

The lowest levels of unemployment since the mid-70s are still failing to boost the bargaining power of workers in the UK, as official figures show Britain’s pay squeeze entered its sixth month.

Average earnings excluding bonuses increased by 2.1% in the three months to August, down from 2.2% in the three months to July after a revision to the earlier figures, according to the Office for National Statistics. City economists had forecast growth of 2%.

When taking account of inflation, the ONS said real wages fell by 0.4% on the previous year, despite the unemployment rate remaining steady at 4.3% – the joint lowest level since 1975.

The figures ignited a political row in Westminster as the Labour leader, Jeremy Corbyn, attacked Theresa May’s stewardship of the economy. Speaking at prime ministers’ questions in parliament on Wednesday, he said: “Figures show that real wages are lower today than they were 10 years ago. Most people in work are worse off.”

The prime minister said tax cuts and the national living wage was helping with the cost of living for households, while it was good news that the unemployment rate was at its lowest level for more than 40 years. “That does mean more money being taken in wages to their families,” she said.

The figures will perplex the Bank of England as it prepares for the first interest rate hike in a decade from as early as next month. The central bank has been looking for signs of pay growth as it seeks to balance a trade-off between supporting jobs and the economy with low rates and cutting the growth in prices.



Howard Archer, chief economic adviser to the EY Item Club, said the data “fails to provide a decisive case” for the Bank to increase the cost of borrowing from 0.25%. “The squeeze on consumers remains appreciable, with obvious negative implications for personal expenditure,” he said.

The latest fall in real pay means that average earnings are no higher than they were in February 2006, despite the economy being 4.4% bigger per person than at that time, according to the Resolution Foundation.



Stephen Clarke, an economic analyst at the thinktank, said: “Today’s figures confirm the big picture trend that the UK labour market is great at creating jobs, but terrible at raising people’s pay.”

There were some positive signs for Threadneedle Street to seize upon should it look to raise rates at the next meeting of its monetary policy committee in two weeks.

The number of people in work increased by 94,000 in the three months to August 2017 compared with three months ago, although that was at a slower rate than in the previous three months to July.

Of the increase in people entering the workforce, 78,000 were women. The total number of people employed full-time increased by 25,000 to 23.56 million, while the number of workers on part-time contracts rose by 69,000 to 8.55 million.

Economists believe the Bank will probably raise rates even with lacklustre readings on the economy – barring any significant reverse – given the strength of its message in September signalling a desire for a rate increase in the “coming months”.

Matt Hughes, a senior ONS statistician, said: “Many labour market measures continue to strengthen. Employment growth in the latest three-month period was driven mainly by women, with a corresponding drop in inactivity. Vacancies remain robust, at a near-record level.”



The sluggish pay growth comes as inflation reached its highest level in half a decade in September, fuelled by the drop in the pound since the Brexit vote a year ago. The consumer price index reached 3% last month, while the Bank’s governor, Mark Carney, said on Tuesday he expects prices to rise further still.

The Institute of Directors, which represents company bosses, blamed uncertainty over Brexit as well as the higher cost of goods used by firms for making it difficult for them to offer better pay packages. Firms have been avoiding investment due to fears over the lack of progress in talks between ministers and Brussels.

Seamus Nevin, head of policy research at the lobby group, said: “This is leaving employers little wiggle room to offer inflation-busting pay increases.”