Average pay is expected to grow at just 1.7%

The squeeze on living standards is set to intensify with new figures showing that wage growth has fallen further behind inflation.

Official data is expected to reveal this week that consumer price inflation rose to 2.7% last month after dipping to 2.6% in June, while average pay is expected to grow at just 1.7%.

Economists say the decline in real household income, which has knocked overall economic growth this year, has further to run.

“The squeeze on the consumer is slowing down the economy, and it’s getting worse,” said Alan Clarke, UK economist at Scotiabank. “It’s wishful thinking to assume that all the bad news is behind us.”

Although the unemployment rate stands at 4.5%, the lowest since 1975, companies are reluctant to raise salaries