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Britons see first drop in real wages since 2014 as prices bite
[LONDON] UK workers saw their real earnings fall in the first quarter for the first time in 2 1/2 years, despite unemployment dropping to its lowest in more than four decades.
Regular pay adjusted for inflation fell 0.2 per cent, the Office for National Statistics said on Wednesday. Nominal earnings slowed to growth of 2.1 per cent, an eight-month low. The unemployment rate fell to 4.6 per cent, the lowest since 1975.
The figures are almost certain to fuel the debate over living standards as Britain prepares for a general election on June 8.
Real earnings are still below their level before the 2008 financial crisis, and their recovery over the past two years is now going into reverse as the weak pound pushes up prices.
Inflation is heading toward 3 per cent this year and squeezing consumer spending, the engine of the economy. In March alone, real earnings fell 0.5 per cent, the biggest decline since July 2014.
For most Bank of England policy makers, the fact that earnings remain subdued despite a healthy labor market suggests there is still enough slack to keep interest rates at a record low.
While officials see wages rebounding next year, the outlook for 2017 is subdued as Brexit uncertainty and higher costs brought about by the ailing pound lead employers to clamp down on costs.
Economic growth slowed in the first quarter but the labor market performed reasonably well. Employment rose 122,000 to a record 31.9 million and unemployment dropped 53,000 to 1.54 million. Vacancies climbed to a record level and average hours worked remained close to their highest rates since 2002.
The fall in unemployment takes the jobless rate closer to the 4.5 per cent that the BOE estimates is the level that can be sustained without generating inflation.