‘Boom-time’ wage growth still a long way off, says report

Wages will outstrip inflation for the first time since the start of the global economic crisis this year but “boom time” pay growth remains a distant prospect, according to a new study.

Wages will outstrip inflation this year, it is predicted.

A special report by economic forecasting group EY ITEM Club predicts a pick-up in pay growth to 1.9 per cent this year, delivering real terms earnings rises amid low inflation - which is expected to turn negative for part of 2015.

But it predicts that while wage growth will continue to accelerate in coming years, it will remain short of the pace achieved in the decade before the financial crisis, held back by a growth in the labour force swollen by immigration and more older workers.

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A separate study published today revealed that consumers’ confidence in their spending power has grown to its highest point in at least four years as the pressure from living costs continues to fall back and the mood around employment becomes more upbeat.

The positive swing in consumer confidence took the overall index in Lloyds Bank’s Spending Power Report to an all-time high level of 154 points in January.

But the Trades Union Congress said life was still “incredibly tough for huge numbers of working people” in the region after revealing that more than 40 per cent of jobs are paying less than the living wage in one Yorkshire parliamentary constituency.

The EY ITEM Club report forecasts pay to grow 3.7 per cent in 2018, 0.7 per cent short of the pre-crisis average.

Senior economic adviser Martin Beck said: “Real earnings have fallen by nearly 10 per cent since 2008, but workers will finally see more money in their pockets this year.

“However, this is not a normal recovery. The move towards later retirement and the huge increase in the size of the workforce has depressed real wages as workers have priced themselves into jobs.

“We don’t expect a return to boom time wage growth any time soon. Employment will continue to be strong, but wage growth will remain relatively modest.”

Wages have struggled despite the upturn in the wider economy over the last couple of years, and strong employment growth, though official data last week showed signs of sustained improvement in real terms pay for the first time since the downturn.

Today’s report expects expansion in the work force to remain the “dominant feature” of the UK labour market over the next four years, increasing by more than 1.2 million people between 2014 and 2018, at an average rate of 0.9 per cent a year.

Separately, an analysis of official figures from the House of Commons Library by the TUC shows nationally one in five jobs pays under the living wage, currently set at £9.15 in London and £7.85 across the rest of Britain.

In Yorkshire and the Humber, East Yorkshire heads the list of living wage blackspots, with 42.4 per cent of the jobs based there paying less than the living wage.

This is followed by Barnsley East (35.6 per cent), Huddersfield (33.1 per cent), Brigg and Goole (32.2 per cent) and Kingston upon Hull East (32.5 per cent).

At the other end of the spectrum, in Leeds Central just 14.3 per cent of jobs pay less than the living wage, followed by Halifax (17.7 per cent), and both the parliamentary constituencies of Sheffield Central and Sheffield Brightside and Hillsborough on 18.1 per cent.

Yorkshire and the Humber TUC Regional Secretary Bill Adams said: “These figures show that for all the talk of recovery, life is incredibly tough for huge numbers of working people in our region.”