London families are facing the worst strain on their budgets for a generation.
Official statistics today revealed that while pay rises are averaging only 2.1 per cent, the cost of living is now rising far faster at 3.7 per cent.
City economists said this means most families' pay packets will not stretch so far in shops, even before the impact of the VAT rise is taken into account.
Today's figures also showed that unemployment is continuing to go up with a 49,000 increase to just under 2.5 million in the three months to the end of November.
Owen James, economist at the Centre for Economics and Business Research, said: "Over the three months to November total pay increased by 2.1 per cent year-on-year. This is significantly below pre-recession levels of between 3.5 per cent and four per cent, and provides a major strain on households' real disposable income levels at a time when the costs of essential goods and services are rising at a greater pace."
Unite union general secretary-elect Len McCluskey said: "This is clear, unequivocal proof that working people striving to raise their families and do a decent job are being kicked in the teeth by this government."
However, the subdued earnings figure took some of the heat out of fears that interest rates will have to rise soon to rein in inflation.
