The standard of living is rising at its slowest pace since 2014 as inflation starts to catch up with wage growth, economists believe, reports the Telegraph.
Prices rose by 2 per cent in the 12 months to January, official numbers are expected to show this week, while pay growth is forecast to have stalled.
Average weekly wages in November were up 2.8 per cent on the year, but that could prove to be a high point.
Economists at RBC expect that to slip back to 2.7 per cent for December, meaning wages grew only 1.1 per cent faster than prices over 2016 – the weakest growth in more than two years. As inflation is rising, that is set to shrink further.
Wages have been rising more quickly than prices since mid-2014, according to the Office for National Statistics.
A fierce price war between supermarkets has helped to keep food costs down, while a drop in the oil price helped drivers and utility bill-payers.
But the surge in living standards could be coming to an end. The fall in the pound has put upward pressure on import prices, while a shortage of vegetables has pushed up food costs. Utilities bills are also rising as oil and gas prices bounce back.
The Bank of England predicts inflation will rise to 2.8pc next year, which indicates household earnings could come under sustained pressure.
Meanwhile a survey of businesses by Lloyds Bank showed strong economic growth across England and Wales, with a more modest expansion in Scotland.
Every region recorded expansion according to the bank’s purchasing managers’ index which came in at 55.5 for January.
That is down from December’s 56.7 but is still substantially above the 50-level which signifies growth.
The Welsh business sector grew at its fastest pace in almost three years with a PMI score of 59.6.
Scotland’s economy accelerated gently to a PMI of 51.2, its fastest in four months.
Employment is growing rapidly in Wales, according to the survey, though hiring in England has slowed down – that component of the PMI fell to 51.9.
“Business activity continues to be resilient with increases in both output and employment levels in January,” said Lloyds Bank’s Tim Hinton.
“This is further evidence the economy has started 2017 with good momentum, but businesses will continue to be mindful of inflation and sustained pressures on their cost base.”