Growth in take home pay ''lowest on record'', claim analysts
The growth in take home pay is now the ''lowest on record'', claim analysts VocaLink.
The VocaLink FTSE 350 index, which is a measure of private sector earnings, shows private sector pay growth fell by 0.1% to 0.5% in the three months to February.
It now stands at May 2010 levels, the lowest rate on record.
This is below the annual rate of inflation of 4% and places a big squeeze on UK households, which are now faced with the twin pressures of high inflation and weak disposable income growth, warns VocaLink.
This month's data shows a significant downturn in the manufacturing sector index.
Over the three months to February, take home pay growth in manufacturing declined from 0.4% to reach an all-time low of -0.6%.
The drop in manufacturing take home pay comes despite recent strong economic indictors for the sector.
The main driver for this negative growth appears to be the -2.6% year-on-year growth experienced in December 2010 due to the poor weather conditions, which has pushed down the three-month average, says VocaLink.
Marion King, chief executive officer at VocaLink, said: ''The findings for this month's VocaLink take home pay index corroborate Mervyn King's view that UK households are currently being subjected to the most prolonged squeeze on real incomes since the 1920s.
''With take home pay falling in real terms, the outlook for the consumer remains bleak this year and this could place significant downward pressure on growth.''
But public sector take home pay growth continues to outstrip that seen in other sectors this month.
Annual growth settled at 1.3% for the three months to February - over twice the 0.5% seen for the FTSE 350 take home pay index.
However, a two-year pay freeze for public sector workers earning over £21,000, due to start in April, is likely to imminently push down pay growth in the sector.
Douglas McWilliams, chief executive of economics consultancy Cebr, said: ''Annual growth in the take home pay index has been falling since November 2010 and now stands at May 2010 levels - the lowest rate on record.
''With the second estimate of GDP growth for the fourth quarter suggesting the UK economy contracted by 0.6% quarter-on-quarter - even worse than the 0.5% fall initially estimated - this month's VocaLink data provides further support for the view that 2011 will be a challenging year for the UK.''