UK wages rising at fastest rate since October 2007, thinktank says

Employment figures for April due later this week are expected to show the biggest rise in real wages growth for nearly eight years, according to new analysis.

The data will give George Osborne a post-election lift after a weak first few months of the year that have shown manufacturing output slide backwards and the biggest boost to growth come from the City and the hotel and restaurant sectors.

 The Resolution Foundation thinktank predicted that average weekly earnings growth will have jumped to an annual rate of between 2.5% and 2.6% in February-April 2015, compared with 2.2% in January-March.

 Combined with inflation falling to -0.1% in April, it means real wages rose by 2.5-2.7%, their fastest rate since October 2007, the study found.But the wages bonanza could be shortlived if inflation, as is expected, continues to rise during the rest of the year to reach 1.7% next summer, driven by higher oil prices.

 The Bank of England is expected to start pushing up interest rates next spring in response to the improving economic outlook, but higher mortgage costs along with other rising prices will eat into real wage growth and disposable incomes.

 Analysts have speculated that households have so far refused to spend the gains from higher real wages for fear that they will prove shortlived. A survey found recently that people expected a pay rise of about 1%. A pay freeze in the public sector, which could be announced as early as next month’s budget, will also depress average wages growth.

Official figures on Wednesday are expected to show that growth in average earnings in the private sector increased to 3.0-3.2% in February-April, the highest real terms growth since September 2007, said the report.

The return of respectable real wage growth is desperately needed, said Resolution, following the UK’s six-year pay squeeze. It added that average weekly earnings are still lower than they were a decade ago and are about £100 a week lower than they might have been in the absence of the downturn.

 Matthew Whittaker, chief economist at the Resolution Foundation, said: “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.

 “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. 

“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.”

theguardian.com