A pause in inflation rises won’t prevent Britain’s pay squeeze returning – six months ahead of schedule

The latest inflation figure of 2.3 per cent for March means that real average earnings look set to have fallen during the first three months of 2017, six months ahead of the OBR’s projection in the recent Budget, the Resolution Foundation said today (Tuesday) in response to the latest ONS figures.

The Foundation’s updated pay projection shows that despite the temporary pause in inflation, real pay growth is expected to have fallen to around 0.1 per cent in the three months to February – a figure that will be confirmed by the ONS tomorrow morning – before turning negative for the first quarter of 2017 as a whole (projected to come in at between 0 and -0.3 per cent in the three months to March).

The OBR’s economic outlook in March 2017 projected that real average earnings would turn negative in the third quarter of 2017.

Stephen Clarke, Economic Analyst at the Resolution Foundation, said:

“The recent run of escalating inflation may have paused for now, but that has more to do with the timing of Easter than any change in the strong upward pressure on prices that is likely to dominate through 2017.

“The result of fast rising inflation in recent months is that Britain’s pay squeeze looks set to have returned – six months ahead of schedule.

“With further price rises expected later this year, and no sign yet of wage settlements responding, this pay squeeze looks set to be deeper and longer than expected.

“The fact that wages are falling at a time when inflation is still relatively low and unemployment is at its lowest level for 40 years, shows just how catastrophic Britain’s productivity failure is for pay packets and living standards.”