For the first time in eight years, real wages are expected to rise for UK workers. The ëErnst & Young ITEM Clubí has forecast an increase in pay growth to 1.9% which will mean real earnings have gone up for the first time since 2007.
Furthermore, this trend is set to continue, with real wages predicted to go up by 3.7% in 2018. Though real average income has dropped 8% from 2008, inflation has plummeted faster thus leading to the prediction. Recently, inflation reached a remarkable low of 0.3% and the Bank of England has forecast it moving into deflation. The trend is driven by the worldwide drop in the price of oil and falling costs for food and energy.
However, the predicted rate of growth will still fall below pre-economic crisis levels. Martin Beck who operates as a senior economic adviser for the ëErnst & Young Item Clubí, commented on the report: ìReal earnings have fallen by nearly 10% since 2008, but workers will finally see more money in their pockets this year.î
He went on to state: ìHowever, 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 donít expect a return to boom time wage growth any time soon. Employment will continue to be strong, but wage growth will remain relatively modest.î
Further to this, the report stated a prediction that unemployment will fall from 5.7% at present to around 5% in 2018 which would be similar to the rate it was at in the pre-economic crisis era.
In addition, the study informed that the workforce in Britain will grow by over 1.2 million personnel between the years of 2014 and 2018, reaching an average of 0.9% per annum. The cause of this trend was in some part down to immigration though it would occur at a slower rate due to better living conditions within the Eurozone that mean people are less willing to move to the UK.
The other considerable factor in the growth in workforce is the predicted increase in elderly men and women remaining in employment due to greater levels of health and the age of state pensions being pushed up. This predicted change is based on data including the reported 1.1 million rise in people over the age of 50 searching for or in work since 2009.
In a report which echoed this one, the official labour market figures revealed a growth in pay with bonuses of 2.1% in December 2014. It is reports such as these that have led many to predict the Bank of England finally raising the base interest rate by early 2016 or even before that date.
However, Beck did repeat the need for caution and realism. He said: ìWith the pace of earnings growth continuing to lag behind pre-crisis norms, workersí pay is unlikely to be the revenue raiser that it has been in the past.î