UK real wages set for first rise since 2007, says EY

Workers in the UK this year will experience real wages rising for the first time since 2007, according to a report from the EY ITEM Club.

The UK’s workforce will see its first pay rise in eight years during 2015, according to a new report on labour from the EY ITEM Club. The research forecasts that inflation will turn negative this year and average wages will increase around 1.9 per cent annually, fuelling the first pick up in real earnings since before the financial crisis.

However, the report tempers this positive news by adding that we are unlikely to see wage growth return to pre-crisis rates in the years before 2018. Despite this slightly gloomier outlook, it does mean that consumers in the UK will effectively have more money in their pockets and will be able to enjoy an increase in purchasing power.

Looking ahead, the report predicts that nominal wage growth will continue to accelerate and should reach 3.7 per cent in 2018. However, continued strong growth in supply of labour will continue to add pressure on wages.

“Real earnings have fallen by nearly ten per cent since 2008, but workers will finally see more money in their pockets this year,” said Martin Beck, senior economic advisor to the EY ITEM Club.

The labour market should receive boosts from a number of key areas, with increases seen from the number of older people staying in the workforce. Furthermore, robust job creation should see the employment rate increase, the unemployment rate decrease, and the number of people receiving jobseekers allowance should fall to its lowest rate since 1973.

Productivity is also forecast to finally recover, according to EY ITEM Club’s report, with a key driver behind growth coming from a healthier financial sector.

It should all equate to good news for the UK economy and will likely force the Bank of England’s Monetary Policy Committee to raise interest rates by early 2016 at the latest.

“A gradual pick-up in wages will translate into good news for the economy through a boost in consumer spending. A pay rise for the UK’s workforce also offers some bonuses for the Government by supporting income tax receipts,” Mr Beck added.

To read the full report please click here.