A pre-Budget jobs boost for George Osborne has been undermined by wages remaining in the “slow lane”, potentially knocking his economic plans off course.
As the Chancellor prepares to deliver his financial update to the Commons, the Office for National Statistics revealed unemployment fell by 28,000 to 1.68 million between November and January, leading to the unemployment rate remaining at 5.1% - a decade low.
However, wages remained stagnant, rising to 2.1 per cent but below the pre-financial crisis trend and despite historically low inflation.
If salaries rise slowly it has knock-on effects for the Treasury as the Chancellor will take less money from income tax, as well as knock consumer spending.
Against a backdrop of a global economic slowdown, the top-line figures will be seized on for bucking the trend.
But the Resolution Foundation pointed out average weekly earnings are still lower than a decade ago and £21 below their 2009 peak.
Laura Gardiner, senior policy analyst at the Resolution Foundation, said: “The jobs market continues to defy the gloomier economic mood, with the proportion of people in work remaining at record levels.
“But the pace of Britain’s pay recovery remains disappointing. Weak earnings growth, coupled with the ratcheting up of the personal tax allowance, are lowering tax receipts and putting more pressure on the public finances.
“The absence of any catch-up up growth during this period of low inflation points to a worrying long-term trend of weaker pay settlements.
“Securing stronger pay growth through productivity-enhancing policy measures will be a key test of today’s Budget if it is to have a significant legacy on the labour market.”
TUC General Secretary Frances O’Grady said: “Despite continued jobs growth, a full recovery in the value of wages is still years away.
“Average weekly earnings are still worth £40 a week less than before the crash and pay growth remains too slow.
“The government needs to do more to build a high investment, high productivity economy with more better paid work."
