Biggest wage increase in nearly eight years expected

Jessica Morris
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Wages are expected to have risen between 2.5 per cent to 2.6 per cent in April (Source: Getty)

Employment figures due out later this week are likely to show Britons enjoyed bumper pay cheques in April, according to the Resolution Foundation think tank, with wages rising at the fastest pace since October 2007.

The think tank predicts that average weekly wages swelled between 2.5 per cent to 2.6 per cent year-on-year. When combined with inflation falling 0.1 per cent in April, real wages rose between 2.5 to 2.7 per cent, making it the largest increase in nearly eight years.

It also expects private sector average weekly wages to have risen from three to 3.2 per cent in February-April, the highest growth in real terms since September 2007.

However, Britons should enjoy the wage gains while they last, as the think tank also said wage growth will level out in May if inflation creeps up.

While wage growth has struggled to gain momentum since the financial crisis - the recent bout of low inflation means individuals have seen their pay packets stretch further.

The Bank of England (BoE) has previously said it expects inflation to rise notably towards the end of this year.

And last week, BoE rate-setter Ian McCafferty said he expects inflation to return to around 1.5 per cent by this time next year, and to 1.7 per cent by the end of 2016.

Read more: Bank of England's Ian McCafferty says time for interest rate rise nearing

"The good news is that real wages are now, finally, growing at a respectable rate by historical standards," Matthew Whittaker, chief economist at the Resolution Foundation, said.

"The bad news is that this only appears to be happening because of inflation falling to unprecedented levels."

"Normally we'd have expected wages to grow at this rate far earlier on in a recovery, so there is an enormous amount of ground to make up. We need to see real wage growth sustained at this rate year on year."

"Ultimately, rising productivity will determine the strength of pay packets over the long-term, and tackling Britain's productivity problems should be the chancellor's top priority in the run-up to the budget."

Productivity - or the amount a work produces per hour - has remained subdued since the financial crisis. Economists have voiced concerns over this because sustained wage growth requires rising productivity.

Nevertheless, chancellor George Osborne has said the government's emergency Budget due early next month will outline steps to tackle this.

Read more: Osborne uses CBI speech to lay out government plans to tackle the productivity puzzle

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