Britons may be starting to feel a bit richer just in time for Christmas as official figures show that wages have been rising faster than prices.
The Office for National Statistics (ONS) revealed that from August to October of this year, pay packets - including bonuses - rose by 1.4% for employees, and by 1.6% excluding bonuses, which is just ahead of inflation, which sank to 1% in November. The figures suggest that pay growth is starting to pick up, increasing 0.4% faster than in the previous month.
The news will be a nicely timed political boost for the coalition, with David Cameron preparing to face his last session of Prime Minister's Questions of 2014 on Wednesday. The prime minister welcomed the news, tweeting: "More to do, but our long term economic plan is working."
Chancellor George Osborne said that the figures marked a "major moment" in Britain's economic recovery, which indicated that the level of employment was rising, with unemployment continuing to fall.
Employment is at a record high & average earnings are rising faster than inflation. More to do, but our long term economic plan is working.— David Cameron (@David_Cameron) December 17, 2014
Major moment in UK recovery with unemployment down, more jobs & wages growing significantly above inflation #LongTermEconomicPlan— George Osborne (@George_Osborne) December 17, 2014
City experts were cautiously welcoming given the fragility of the recovery, as many were surprised by inflation rising in November to just above pay growth, marking a surprise return of the pay squeeze.
Jeremy Cook, chief economist at World First, warned: "The UK economy is very much on a tightrope at the moment."
Regular pay & pay incl bonuses rose bit faster in 3 months to Oct than Oct CPI & current CPI inflation. Not yet firm trend, but encouraging— Robert Peston (@Peston) December 17, 2014
Howard Archer, chief UK economist at IHS Global Insight, said: "Earnings growth now seems finally to be on a clear upwards track, even if progress is currently still only gradual. With consumer price inflation down to a 12-year low of 1.0% in November and looking set to dip further, positive real earnings growth is developing."
The Office for National Statistics revealed that employment continued to rise, with 115,000 more people in work over this August to October than the previous quarter, bringing the total to 30.80 million.
The ONS also said the number of jobless sank by 63,000 to 1.96 million unemployed people, which was the smallest quarterly fall since July to September 2013.
Meanwhile, Bank of England officials have signalled that they were expecting it was "more likely than not" that inflation would fall below 1% in the coming months, requiring governor Mark Carney to write a letter to George Osborne explaining how he let inflation fall so far off target.
"The expectation of Bank staff was that this was most likely to occur first in the December data as increases in energy prices in December 2013 dropped out of the twelve-month comparison," the Bank of England said in minutes released on Wednesday from its Monetary Policy Committee's November meeting.
"It was also thought likely that CPI inflation would remain below 1% for some months after that."