Pay to return to pre-crisis levels in 2017, think tank predicts, but warns of inflation rise risk

Lynsey Barber
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Real wages will return to pre-crisis levels in two years (Source: Getty)

Pay will return to pre-crisis levels by 2017 if economic trends continue, a think tank predicts, however rising inflation could push that off-course.

The latest research by the Resolution Foundation predicts that average weekly earnings grew by between 2.7 per cent and 2.8 per cent in the three months to July, in line with the three months to June and the joint fastest level of growth in the past eight years, largely thanks to low inflation.

If this rate persists, which is above the post-crisis trend of 2.2 per cent, then average pay will return to pre-crisis levels in mid-2017.

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“Britain’s pay recovery has settled in at a healthy 2.8 per cent, helped along by historically low inflation," said Resolution Foundation's chief economist Matthew Whittaker. However, price rises may make continued growth in pay levels difficult to maintain in the long term.

“After six years of falling real pay, this period of catch-up growth is very welcome for workers. But it may prove short-lived once inflation picks up. Even in the optimistic scenario in which wage growth remains above-trend, it will be 2017 before the pre-crisis average pay level is restored – a decade of lost growth. Prospects for stronger wage growth will ultimately rest on getting to grips with Britain’s poor productivity record, and ensuring that these improvements find their way into pay packets.”

Average earnings remain over £110 a week lower than they would have been if the rate of growth pre-crisis had continued, and the think tank warned that the country may never recover that lost ground.

The group's pay projection report is published ahead of official figures from the Office of National Statistics due to be released this week, which are expected to show average earnings growth excluding bonuses, of 2.9 per cent, according to analysts.

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