15 Apr 2014

UK workers could receive first real pay rise for six years

Inflation falls for the sixth month in succession in March paving the way for an end to the prolonged squeeze on wages, official figures show.

The consumer prices index (CPI) rate dropped to a new four-year low of 1.6 per cent, from 1.7 per cent in February, according to the Office for National Statistics (ONS).

It comes a day ahead of separate ONS labour market statistics which are expected to show that regular pay is rising at a rate of 1.8 per cent, up from 1.3 per cent.

CPI has not been lower since October 2009, when it stood at 1.5 per cent. The latest fall in inflation was widely expected by economists.

‘Resilient economy’

It is likely to herald an end to a six-year period when pay growth has been lagging behind the rise in the cost of living, effectively shrinking workers’ spending power.

Chancellor George Osborne said: “These latest inflation numbers are welcome news for families.

“Lower inflation and rising job numbers show our long term plan is working, and bringing greater economic security.

“But there is still much more we need to do to build the resilient economy I spoke of at the budget.”

Earnings have not increased at a higher rate than inflation since a brief spike in March and April 2010 and have not consistently been improving since 2008.

Lower inflation and rising job numbers show our long term plan is working – George Osborne

It would be deeply out of touch for ministers to try and tell people the cost-of-living crisis is over – Shabana Mahmood MP

An end to the squeeze will be seen as a watershed moment in the recovery, and is likely to be seized upon by the coalition to blunt Labour charges that the economic upturn has yet to benefit ordinary working families.

Samuel Tombs of Capital Economics said: “March’s UK inflation figures suggest that the six-year squeeze on real earnings is finally over.

“Looking ahead, we continue to think that a combination of stable commodity prices, falling import prices and recovering productivity will push CPI inflation as low as 1 per cent before the year is out.

“This would provide more solid foundations for the recovery in consumer spending and enable the MPC to keep Bank Rate at 0.5 per cent until late 2015.”

Shabana Mahmood MP, shadow Treasury minister, said: “At long last it looks like average wages will soon be rising faster than CPI inflation.

“But after four years when wages have fallen sharply in real terms, a huge turnaround is needed to ensure people aren’t worse off than when David Cameron came to office.

‘Deeply complacent’

“Real wages have fallen by £1,600 a year since 2010 and, on top of this, tax and benefit changes will see the average household £1,000 a year worse off by next year.

“It would be deeply complacent and out of touch for ministers to try and tell people the cost-of-living crisis is over on the basis of one or two statistics.

“We have a deep-seated cost-of-living crisis which is about insecurity at work, the prospects for the next generation and the broken link between the wealth of the nation and family finances.

“While the Tories deny it even exists, Labour has a clear plan to deal with the cost-of-living crisis and earn our way to higher living standards for all, not just a few at the top.”

Retail inflation

Meanwhile, inflation in food and non-alcoholic drinks fell to a near four-year low of 1.8 per cent, the lowest since May 2010 when it was the same. It was last lower in February 2010.

A separate measure of inflation, the retail prices index, which includes housing costs, fell to 2.7 per cent in February from 2.8 per cent in January.

A new measure of inflation, CPIH, which also includes housing costs, fell to 1.6 per cent, down from 1.8 per cent in January. Another new measure, RPIJ, fell to 2 per cent from 2.1 per cent in January.