Pressure on Britain’s living standards intensified in March as wages fell further behind inflation, official figures showed.
On a price-adjusted basis, average earnings excluding bonuses fell 1.9 percent from a year earlier, the biggest drop since 2013, the Office for National Statistics said on Tuesday.
Rising prices are depriving workers of the benefits of the strongest job market in living memory.
Non-bonus wages rose 4.2 percent in the first quarter, double the 2.1 percent average in the decade before the pandemic. This increase was more than offset by the rising cost of living.
With inflation expected to exceed 10% by the end of the year and the government raising taxes, consumers are facing an almost unprecedented fall in their real disposable income.
Some analysts say the blow could plunge the economy into recession, raising questions about how far the Bank of England will hike interest rates and putting pressure on the government to do more to support those who are most vulnerable are affected by the crisis.
“I understand these are anxious times for people,” Finance Minister Rishi Sunak said in a statement. “It is reassuring that fewer people are unemployed than previously feared.”
Frances O’Grady, secretary-general of the Trades Union Congress, said millions of families are at the “point of stress” as prices of everything from energy and food to clothing and transport soar.
The job market remained tight in the first quarter, unemployment fell to 3.7 percent – the lowest rate since 1974 – and job vacancies continued to rise to record levels.
Employers are struggling to find workers because hundreds of thousands of people who left the workforce during the pandemic have chosen not to return.
Employers hired 121,000 new employees last month, more than double the forecast.
For the first time in the first quarter there were more vacancies than people registered as unemployed.
In view of the acute labor shortage, private-sector companies increased premiums sharply. As a result, total wages rose 7 percent year-on-year and 9.9 percent in March alone, the largest one-month increase since records began 22 years ago.
“We expect some of the heat to come from the labor market this year as the rising cost of living weighs on purchasing power and the economy cools,” said Ana Luis Andrade of Bloomberg Economics.
“But the continued short-term resilience of the jobless rate increases the risk that the Bank of England will hike rates a bit more than we forecast – likely in June and possibly August.”
The BOE expects the number of unemployed to start rising later in the year as employers react to a sharp fall in demand.
Policymakers are raising interest rates in an attempt to bring inflation back to the 2 percent target.
The fear is that wage demands across the economy could rise if workers believe high inflation will persist, triggering a damaging wage-price spiral.
However, forecasters are divided on how far borrowing costs will rise.
The BOE delivered a fourth straight rise this month to bring the benchmark rate to 1 percent and money markets are pricing in nearly 2.5 percent in a year.
But economists expect just two more hikes of 25 basis points overall over the summer before monetary policy pauses.