Figures out today show UK wages (total earnings including bonuses) have fallen back to 2.2%. The number for the three-month period from July to September marks the sixth time in a row where our earnings have fallen in real terms.

This will hurt, and not just for cash-strapped consumers, but also for the UK economy as a whole - as we know this is a service-based economy which relies on confident consumers spending on goods and services. But as UK households juggle the pressures of flat pay packets, rising prices, and the recent hike in interest rates, the squeeze on our finances is only getting worse.

And it’s starting to show - last week’s UK retail sales figures showed Brits are cutting down spending on non-essential items and instead channelling money to the essential goods as the cost of groceries gets more expensive. This will add pressure on retailers who are already struggling with a tough climate on the high street amid rising costs, pressure from the discount retailers and a fundamental shift in how we shop - we’ve become bargain hunters who prefer to shop online.

But back to the thorny issue of our paltry pay packets. Many have pointed to wage growth - or the lack thereof, as the ‘missing piece of the puzzle’ - despite employment being at record levels our earnings remain weak.

It’s isn’t a new problem. In fact, wage growth has been weak for several years and a key feature of the post-financial crisis world. Economists point to the issue of ‘slack’ in the labour market - meaning the jobs market isn’t working as well as it should. This is usually down to underemployment: people working part-time who want a full-time job or hidden unemployment: people who are not actively looking for work but who would rejoin the workforce if the job market were stronger.

The other problem is the issue of poor productivity. Again, this isn’t unique to the UK and has been an issue in many developed world economies since the financial crisis. But in the UK the problem is particularly acute - in fact, the average German worker could go home early on Thursday afternoon and still have produced as much as the average Brit who toiled all the way through Friday. French and American workers would have to work around an hour or so more but could still have a day to spare for leisure time.

Most economists concur that slowing productivity is one of the most serious problems in their field today, but few can agree on the cause and still less on the right response. But there’s no disputing that it’s a serious issue as the Nobel Prize-winning economist, Paul Krugman put it, “Productivity isn’t everything, but in the long run it is almost everything.”  

Both these factors pre-date the Brexit decision but the vote to leave the European Union will also have an undeniable impact on wage growth and productivity. The mounting uncertainty around the Brexit negotiations means companies will be hesitant when it comes to investing or paying higher wages - not great for wage growth and not helpful when it comes to improving productivity.

Brexit battles aside, there are also bigger structural changes keeping a lid on wages ranging from people working flat out in the gig economy yet still struggling with paltry pay, more and more people in self-employment and falling unionisation. Then there’s technology and automation - the relentless substitution of technology for human activity. This process has been happening since the days of the industrial revolution but today it’s an even greater threat because for the first time machines are capable of replacing not just physical but also cognitive skills.

Today there are more people employed in this country than ever before. The problem is our wages are increasing at a glacial pace. Against a backdrop of soaring inflation, this means that as every month rolls by, we’re getting progressively poorer. That’s why we need our savings and investments to work even harder - be careful about leaving your money languishing in cash. Granted, it may be a safer option than the stock market - but with rising inflation and lower-for-longer interest rates, you’ll be losing out over the long term. That matters, as you wait for that elusive pay rise…

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