UK wage growth lags inflation as savers feel pinch of post-Brexit pound sterling slump

Basic wage growth was 2.1% during the three months to the end of August when excluding bonuses, unchanged from the previous three-month period

Maike Currie, investment director for personal investing at Fidelity International, said that 'the absence of wage growth remains the missing piece of the puzzle in the UK’s slow road to recovery' (Getty)

Real wages across the UK declined for a sixth consecutive month in August. Growth in pay packets continued to lag behind a jump in inflation triggered by a dramatic fall in the pound since the UK voted for to leave the EU.

Official data on Wednesday showed that basic wage growth was 2.1 per cent during the three months to the end of August when excluding bonuses, unchanged from the previous three-month period and marginally higher than the 2 per cent pencilled in by analysts, but well below inflation.

Figures earlier this week showed that inflation had hit a five-year high of 3 per cent in September, piling fresh pressure on the Bank of England to raise interest rates next month.

The central bank is now broadly expected to increase its bank rate to 0.50 per cent from an all-time low of 0.25 per cent at the end of its next meeting on 2 November.

“Pay packets are taking a hammering,” said TUC general secretary Frances O’Grady. “This is the sixth month in a row that prices have risen faster than wages. Britain desperately needs a pay rise. Working people are earning less today in real-terms than a decade ago,” she added.

Maike Currie, investment director for personal investing at Fidelity International, said that “the absence of wage growth remains the missing piece of the puzzle in the UK’s slow road to recovery”.

“Low wages and high inflation mean we need our savings to work even harder in order to generate an inflation-beating return,” she said.

“Even if the Bank of England does decide to pull the trigger on a November rate rise, it’s likely that the Old Lady of Threadneedle Street will only incrementally move rates up from 0.25 per cent to 0.5 per cent, which will be cold comfort to income-hungry savers,” she added.

Inflation has risen dramatically this year, spurred by a fall in the pound in the aftermath of last year’s Brexit vote causing the price of imports to rally.

In July – the mid-point of the quarter for the latest wage data – inflation was 2.6 per cent.

Some forecasters had predicted that the weak pound would spur a rise in exports to counterbalance this trend but that’s failed to materialise.

Wednesday’s data also showed that job creation across the UK is continuing, albeit at a slightly slower pace.

The number of people in work rose by 94,000 during the period, about half the increase in the three months to July but still a relatively strong rate of growth.

Kathleen Brooks, research director at City Index, said that this was likely a “natural slowdown as the jobs market tightens and unemployment remains low”.

The official jobless rate was steady at a 42-year low of 4.3 per cent, unchanged from a reading for the three months to the end of July.