The Bank of England has declared that wages are set to rise significantly faster inflation by the end of 2015. This will mark the end of the longest pinch on living standards in recent times.
Since the start of 2008 average earnings in the UK have fallen by 7.5 per cent, although accounting for inflation they are no higher than in 2003. Many have felt the squeeze as a result of this despite modest recovery on paper.
The Bank is now forecasting wages to climb at a rate of 3.5 per cent by the end of next year, a good deal higher than the predicted inflation of 1.4 per cent. The interest setting committee of the Bank Of England said it “expects annual real pay growth to pick up from about zero now to about 2 per cent by the end of next year, returning it to normal levels not seen since before the crisis.”
It emerged today that the squeeze on household finances was finally easing after after six years of hardship. Average pay in the third quarter grew by 1.3 per cent compared with the same period last year. Meanwhile, inflation over the same period was at 1.2%, according to the Office for National Statistics.
Bonuses fell by an average of 5.3% per cent over the same period, meaning total pay growth remained below inflation. Wages overall have been in recovery for five consecutive months and grew even more in the month of September.
Rising wages and low inflation will combine for the first time in years to provide a glimmer of hope to UK households. On top of that, oil prices are in decline, pushing down the cost of heating and petrol. The cost of food is also increasing at it’s lowest rate since 2002.
Paul Hollingsworth, expert in UK economics at Capital Economics said: “A recovery in real wages looks set to provide timely support to the economic recovery.”
With the news that 112,000 people found employment in the second quarter of this year, rate of job creation in the country is also encouraging. In the past year almost 700,000 new jobs have been created. Youth unemployment fell from 16.9 per cent to 16.2 per cent.
Despite the encouraging figures, a stark reminder of the state of affairs came from chief economist, Matthew Whitaker: “The depth of the six-year pay squeeze is such that we can’t expect average pay to return to its pre-crisis levels until the end of the decade,”