Real wage growth set to remain above pre-crisis level but no longer accelerating

Official figures published later this week  are expected to show that average earnings again grew strongly last month but that the pace of this pay recovery has flatlined, with real wage growth remaining roughly fixed at 2.8 per cent, according to independent think tank the Resolution Foundation’s latest pay projection published today (Sunday).

The analysis, which models recent labour market data to forecast short-term trends in regular (non-bonus) pay, predicts that average weekly earnings growth will stand somewhere between 2.7 and 2.8 per cent in the three months to June. That would leave it broadly in line with May’s figure of 2.8 per cent – which was the joint fastest level of real pay growth in eight years – but would bring to an end a series of accelerations in growth.

The pace of wage growth is then expected to remain relatively stable over the remainder of the year, with some increases in nominal growth being offset by a pick-up in inflation from its current 0 per cent level. The Bank of England reported last week that it expects average earnings growth (including bonuses) to stand at 2.7 per cent in real terms by the end of the year. It is then projected to fall back to 2.2 per cent over the course of 2016.

The current above-trend rate of wage growth is helping to make up some of the ground lost over the course of the six-year pay squeeze. But the Foundation warns that pre-crisis earnings are unlikely to be restored before the end of the decade.

Matthew Whittaker, Chief Economist at the Resolution Foundation, said:

“While we expect to see a stalling or even a slight fall in the level of real pay growth when official figures come out later this week, wages are still growing above the pre-crisis trend, meaning that the overall picture remains a very positive one.

“But average earnings are still lower than they were a decade ago. The prospect of inflation heading back towards its 2 per cent target over the next 12 months means that a full pay recovery remains some way off. We may never recover the pay growth lost over the course of the six-year pay squeeze.”