Theresa May faces mounting pressure over wages and living standards

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Theresa May was today hit by a growing row over falling living standards for millions of households and public sector pay restraint.

Official figures showed that average wages dropped by 0.5  per cent in July, once inflation is taken into account, raising the pressure on family budgets. It was the sixth month in a row that inflation has outstripped pay rises and the  longest squeeze on living standards for three years.

Economists said a significant share of the blame fell on the Brexit vote in June last year, which sent the value of sterling plummeting, pushing up the cost of imports and making foreign holidays more expensive.

But there was good news as figures showed employment has hit another record high. The number of people in work rose by 181,000 to 32.13 million between May and July, the Office for National Statistics said. The employment rate also rose by 0.5 per cent to a record high of 75.3 per cent on the quarter.

Today Mrs May clashed with Jeremy Corbyn at Prime Minister’s Questions over public sector pay. The Government yesterday lifted the one per cent pay cap — first for police officers and prison staff — but their wages will still rise less than the current rate of inflation. In the Commons, the Labour leader said: “Does the Prime Minister understand that inflation is now 2.9 per cent — anything less means that dedicated public servants are worse off again.”

He urged her to guarantee that the lifting of the pay cap for police and prison officers would not be funded by staff cuts. Mrs May refused but stressed that the pay review bodies were independent. She accused him of ignoring today’s figures showing record employment, as well as automatic pay increases over and above the annual wage rises that many public sector workers get.

She said: “We need to ensure that we balance out protecting jobs in the public sector, being fair to public sector workers and being fair to taxpayers who pay for it, many of who are public sector workers. There is a need for greater flexibility as we look at these issues of public sector pay in the future.”

July’s fall in real wages, excluding bonuses, was bigger than the 0.4 per cent drop in the previous two months. Experts warned that it is set to get worse after CPI inflation hit 2.9 per cent last month. Howard Archer, chief economic adviser for the forecasters EY Item Club, said: “The pain for the consumer continues as earnings growth remains muted and clearly below inflation.”

Shadow work and pensions secretary Debbie Abrahams said: “We welcome the overall increase in employment, but are deeply concerned that millions are still unable to make ends meet as the cost of basic essentials spirals while real pay falls.”

Experts believe the weak wages data will dissuade members of the Bank of England monetary policy committee from putting up interest rates.

Andrew Wishart, UK economist at Capital Economics, said: “With inflation reaching 2.9 per cent in August, the squeeze on households’ real incomes probably intensified. That would make the risk of a sharper downturn in consumer spending the overwhelming concern to the majority of the MPC members.”

MPs were today debating pay restrictions in the NHS, with Labour warning they were leading to recruitment problems for nurses and other key staff.

The one per cent pay cap is expected to be lifted for nurses, teachers and some other public sector workers. Unions are threatening illegal strike action over the pay cap. Unite boss Len McCluskey has likened himself to Nelson Mandela and Mahatma Gandhi.

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