Economists have warned that the Bank of England will hold off on increasing interest rates as stalled wage growth constricts consumer spending, in turn creating a strong headwind for economic growth.
The latest labour market data for the UK shows that employment continues to rise with 31.4m people in work, 312,000 more than the year previously.
Unemployment is at its lowest level since 1975.
However, with inflation holding steady at 2.3%, higher than the BoE’s 2% target, wage growth has been wiped out.
Ian Kernohan, economist at Royal London Asset Management, said: “The latest UK labour market report shows that employment continues to rise, while unemployment has fallen again.
“However, despite this apparent tightening in the labour market, there are few signs of any upward pressure on wages.
“Therefore, we would expect the Bank of England to keep interest rates on hold this year, as households face a real income squeeze.”
The BoE has predicted inflation will continue up to a peak of 2.8% in early 2018, with Ben Bettrell, a senior economist at Hargreaves Lansdown, warning of the impact on the UK economy which is “heavily reliant on consumer spending”.
