UK wage growth forecast to hit seven-year peak, forecasts study

Wages in Britain will increase at fastest rate since the 2007 financial crisis, predicts independent thinktank.

When official figures are published later this week, workers in the UK are likely to see that real wages have grown at their fastest rate since before the financial crisis, according to a new forecast.

Independent thinktank Resolution Foundation expects that the coming release of employment figures will show that average weekly wages grew by 2.5 to 2.6 per cent in April this year, when compared with the same month last year. If we take into account that inflation has been near zero for the last few months, then real wages rose between 2.5 to 2.7 per cent - a near eight-year high.

The analysis modeled recent labour market data to forecast short-term trends in pay and noted that wage growth in the private sector should be driving the overall surge. Growth in average earning in the private sector is forecast at 3.0 to 3.2 per cent in April, the highest real term growth since September 2007.

“The good news is that real wages are now - finally - growing at a respectable rate by historical standards. The bad news is that this only appears to be happening because of inflation falling to unprecedented levels,” said Matthew Whittaker, chief economist at the Resolution Foundation.

However, the research noted that any pickup in inflation would suppress further real wage growth. After seeing the Bank of England’s latest forecast, Resolution Foundation predicts that real wage growth will be lower at the end of the year than current levels.

The thinktank has called upon the chancellor to take steps to ensure that the return of respectable real wage growth is sustained, especially following the UK’s six-year pay squeeze. In the report, Resolution Foundation points out that average weekly earnings remain lower than they were a decade ago, and are around £100 a week lower than they would have been in the absence of a downturn.

One key move, it suggests, would be to tackle productivity problem in Britain.

“Normally we’d have expected wages to grow at this rate far earlier on in a recovery, so there is an enormous amount of ground to make up. We need to see real wage growth sustained at this rate year on year,” said Mr Whittaker.

“Ultimately, rising productivity will determine the strength of pay packets over the long-term, and tackling Britain’s productivity problems should be the Chancellor’s top priority in the run-up to the Budget.”