Wage rises: we really are finally all getting richer

Average earnings will start rising faster than the cost of living as early as this month, EY reckons.

by Emma Haslett
Last Updated: 15 Apr 2014

Last week we reported that the ONS was about to make changes to the way it measures a range of economic indicators so that the UK will become a wealthier, more productive, generally greater place overnight.

But – caloo, calay! – it turns out the UK really might be about to get wealthier. And not just by moving the statistical goalposts, either: according to a forecast published by the EY Item Club this morning, wages could be about to start rising faster than inflation for the first time in almost six years.

The forecaster reckons the average wage increase will be 1.7% this year, above the 1.6% it thinks inflation will average at for the next year.

A couple of points worth noting: firstly, EY Item Club’s disparity with the Office for National Statistics, as far as recent figures are concerned. Here is what the ONS reckons wages have been doing vs inflation over the past 10 years:

By the ONS’ reckoning, monthly wage rises went way above inflation in February – hitting 5.6%, against 1.7% CPI. To be fair that does seem like a bit of an outlier. We’re more inclined to go with EY Item Club’s rather more modest figure.

The good news – for businesses and consumers – is that it also expects the Bank of England to keep interest rates low until at least the third quarter of 2015, while inflation stays low.

‘The consumer upturn will be given a boost from real wages and rising employment, while investment is finally kicking in. We are set for a long period of low inflation as pressures from commodity prices… remain largely absent,’ said Peter Spencer, its chief economic advisor.

Given that a separate study published this morning by housing charity Shelter reckons 3.8 million families in the UK only have enough money to pay their rent or mortgage for a month if they lose their jobs, this is very good news.


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