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Biggest real terms fall in wages since 2014 as inflation bites

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Britain’s pay squeeze deepened at the start of the year as wages fell in real terms at the sharpest rate for more than seven years, official figures show.

Average earnings – stripping out bonuses – climbed by 3.8% in the three months to January, according to the Office for National Statistics (ONS), up from 3.7% the month before.

But the increases are not keeping up with inflation – now at a three-decade high and expected to intensify as energy bills rise in the spring and the Ukraine war adds to pressure on global commodity prices.

That meant wages fell by 1% in real terms – the steepest decline since July 2014.

The picture was a little less gloomy when measuring wages including bonuses, which were up by 4.8%, though that still represented only a 0.1% real terms increase.

Meanwhile, Britain’s unemployment rate was a little lower than expected at 3.9%, down from 4.1% in the three months to December.

The ONS findings also underlined the recruitment struggles facing many employers, with the number of vacancies in the three months to February hitting a new record of just over 1.3 million.

The figures are the last set of job and wage data before the spring statement next week, which is expected to see Chancellor Rishi Sunak unveil the latest economic forecasts.

Mr Sunak has been warned that without spending billions more, Britain will face a household income squeeze that could be the worst since the 1970s.

Responding to the latest figures, the chancellor said: “Thanks to the unprecedented economic support we’ve provided, we’ve now seen a year of falling unemployment and a stronger jobs market bounce back than so many predicted.

“I am confident that our labour market is in a good position to deal with the current global challenges, with payrolled employee numbers above pre-pandemic levels in every nation and region and redundancies at record lows.”

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