The average UK worker earns less in real terms in 2017 than in early 2006 © Getty Images/iStockphoto

The pay squeeze for Britain’s workforce has continued for the sixth month in a row according to the latest official data, even though unemployment remains at a 42-year low.

Statistics on the state of the labour market for the three months to the end of August show a familiar pattern for the UK: high levels of employment, low levels of joblessness but stubbornly meagre pay growth.

Stephen Clarke, an economic analyst at the Resolution Foundation think-tank, said: “Today’s figures confirm the big picture trend that the UK labour market is great at creating jobs, but terrible at raising people’s pay.”

Inflation outstripped average regular wage growth again over the period, with the result that real pay fell 0.4 per cent.

Average regular pay rose 2.1 per cent in cash terms, slightly slower than the 2.2 per cent recorded the previous month, and about half the pace that was typical before the financial crisis.

The average worker in the UK still earns less in real terms in 2017 than in early 2006, before the crash dealt a heavy and long-lasting blow to living standards.

But economists said the data pointed to a jobs market that remained otherwise healthy. The unemployment rate held steady at 4.3 per cent, the lowest since 1975. There was a slight dip in the employment rate from last month, but it remained close to a record high at 75.1 per cent. Alan Clarke, an economist at Scotia Bank, said the drop in employment in the single month of August was “a tad disappointing” but added: “This series has been running a little bit hot, so no great surprise that it’s cooled off a touch.”

Almost all of the jobs growth over the past year has been in full-time jobs, which suggests the quality of employment is on the rise. Damian Hinds, the minister for employment, said: “Our economy is helping to create full time, permanent jobs which are giving people across the UK the chance of securing a reliable income.”

The jobs data present a dilemma for the Bank of England’s Monetary Policy Committee, which is weighing up whether to raise interest rates from their record lows at the next meeting in November. The very low unemployment rate would usually prompt them to tighten monetary policy. In addition, inflation in the UK rose to 3 per cent in September, its highest level for half a decade. But the persistent weakness in wage growth — in spite of high inflation — is a puzzle that may suggest the economy is not at risk of overheating after all.

“While the headline jobless and price inflation rates imply the economy needs a small interest rate rise, the pay squeeze says ‘not quite yet’,” said John Philpott from The Jobs Economist consultancy.

But John Hawksworth, chief economist at PwC, said the “underlying trend” for jobs growth remained strong. “Nothing here would deter the Bank of England’s Monetary Policy Committee (MPC) from raising interest rates on November 2 if they were already minded to do so,” he said. Economists expect the majority of the nine-person committee to vote for a rise, although not all their views are known.

Dave Ramsden, deputy governor for banking and markets, who is new to the BoE having previously been the government’s chief economic adviser at the Treasury, said on Tuesday he favoured keeping rates lower for longer. “A majority saw a case for removing some monetary policy stimulus in coming months . . . I was not part of that majority,” he said.

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