Pay rise and living costs gap at widest point in 20 years

Employees are suffering from the largest gap between pay rises and increases in the cost of living in nearly 20 years, figures show.

Research by pay consultants Industrial Relations Services (IRS) found the average wage increase in both public and private sectors is 3.2%. But the retail prices index measure of inflation stands at 4.6% - the largest gap recorded since October 1990.

Phillip Hammond, shadow chief secretary to the Treasury,said: "This research shows exactly why life is getting tougher for Britain's hard-pressed families.

"Living costs are outstripping people's pay rises, leaving families' incomes squeezed."

According to XpertHR, the median pay increase has fallen from 3.5% in the first quarter of 2008, with the private sector still better off with wage increases of 3.4%.

This comes as the Office for National Statistics revealed growth figures for the UK economy stalled to 0.2% - the slowest rate in almost four years.

Output from the manufacturing, mining and construction sectors fell, while transport, communications and storage firms grew.

Earlier this week, the National Institute of Economic and Social Research called on the Bank of England to raise interest rates to 5.25%.

It claims expectations of increasing inflation becoming embedded in wage bargaining outcomes were the biggest contributor to the risk of inflation, and said a "short, sharp shock" would be necessary, if not "appropriate".

The IRS studied pay rises at almost 270 firms between April and June.