Average wages in Britain have fallen at the fastest rate since 2014 as annual pay growth fails to keep pace with rising inflation amid Britain’s cost of living crisis.

The Office for National Statistics said that annual growth in regular pay, excluding bonuses, fell by 1% in the three months to January after adjusting for its preferred measure of inflation – the biggest fall since July 2014.

Average total pay including bonuses rose slightly by 0.1% amid a bumper bonus season in the finance sector.

Against a backdrop of soaring energy bills and the rising cost of the weekly shop, the latest snapshot showed a steady recovery in the jobs market from Covid was offset by high rates of inflation that experts warned would be worsened by surging energy prices after Russia’s invasion of Ukraine.

In a sign of strength for the labour market, unemployment fell back below pre-Covid levels for the first time. The unemployment rate dropped to 3.9% in the three months to January from 4.1% in the three months to December, dropping below 4% in February 2020 before the pandemic took hold in the UK.

Frances O’Grady, the general secretary of the TUC, said the government needed to use next week’s spring statement to outline measures to support workers amid the worst hit to living standards in decades.

“Working people deserve financial security and a wage they can live on. But instead, they are facing the steepest decline in real pay for eight years, and a cost of living crisis that will get worse if the government doesn’t act now,” she said.

“Energy bills will rise at least 14 times faster than wages this year. Household budgets are already stretched to the brink and can’t take any more.”

The latest snapshot showed the number of job vacancies rose to a fresh record high of 1.3m, suggesting a sustained increase in demand for workers after the end of furlough and despite the emergence of the Omicron variant hitting the economy.

Employment continued to rise over the period, although the official employment rate remained one percentage point below pre-pandemic levels amid a decline in the number of self-employed workers and more older staff leaving the workforce.

Analysts said the strength in the labour market suggested the Bank of England was likely to increase interest rates again on Thursday in response to soaring inflation. Average wages, including bonuses, rose at an annual rate of 4.8% before taking account of inflation – an increase from 4.6% in the three months to December, and a faster rate than expected by City economists.

Rishi Sunak, the chancellor, said the government’s economic support measures had driven a stronger jobs market rebound than many observers predicted.

“I am confident that our labour market is in a good position to deal with the current global challenges,” he said. “We know people are concerned about the rising cost of living so alongside continuing to help people find great jobs – we’re providing direct support worth more than £20bn this financial year and next.”

However, employment experts and poverty campaigners warned signs of strength in the jobs market would offer little comfort to workers seeing their pay packets eroded by soaring inflation.

“It doesn’t matter that a record number of people are now on UK payrolls or that there is still a record number of job vacancies, people in work are feeling the pinch and it’s going to get worse,” said Danni Hewson, a financial analyst at the stockbroker AJ Bell.

“It’s not because wages aren’t rising, how could they not in such a tight labour market, it’s just that the cost of simply living is getting more and more expensive.”

The latest figures showed that pay growth was strongest in the private sector and among finance and professional services. Before taking account of inflation, average private sector pay, including bonuses, rose by 5.4% in the three months to January, compared with just 2.4% in the public sector.

Nye Cominetti, a senior economist at the Resolution Foundation, said the pay squeeze was unlikely to end soon. “Overall surging inflation will wipe out any wage gains in 2022,” he said. “Britain’s real pay squeeze, which started as far back as summer 2021, will get deeper in 2022, and is unlikely to end until summer 2023.”