Budget 2017: Real wages predicted to rise after growth revised upwards this year by OBR

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The Uk Minimum Wage Of GBP5.05
UK workers are set to see real wage increases gradually accelerate, the OBR says (Source: Getty)

Real wages are set to grow steadily for the next five years, the government’s Budget watchdog said, as it upgraded growth predictions for this year.

Earnings will rise by 0.2 per cent above inflation this year, before accelerating to rise by 1.6 per cent more than prices by 2021, according to the Office for Budget Responsibility (OBR).

This rise in real wages will come despite employment rising, although unemployment is also set to rise from historic low levels to reach 5.2 per cent in 2020.

Read more: Spring Budget: The OBR is still too pessimistic about UK growth this year

There was also a big upwards revision for the UK’s GDP growth, with the economy now expected to expand by two per cent in 2017. The OBR had previously forecast a rise of 1.4 per cent in forecasts accompanying November’s Autumn Statement.

Wages set to outpace inflation

Wage growth will keep just ahead of inflation, the OBR predicts (Source: OBR)

Robert Chote, OBR chairman, said the larger expansion was partly caused by a “strong start” for the UK economy this year.

The forecast for growth was also boosted by multiple one-off accounting changes, such as the timing of contributions to the EU budget.

Read more: UK economy to accelerate this year after growth upgrade says OBR

However, the boost to growth will be short-lived, with growth revised slightly down in the next three years. GDP growth will slow to 1.6 per cent in 2018, before gradually rising back to two per cent in 2021, the OBR said.

Chote said: “The economy ended 2016 with greater momentum than we expected, thanks to the great British consumer, but the outlook over the medium term is little changed.”

Economists were mostly unmoved by the government's measures to boost growth, anticipating the chancellor will hold back spending in case the Brexit process weighs on growth.

“This was a steady-as-she-goes Budget,” said David Stubbs, global market strategist at JP Morgan Asset Management, with forecasts deviating little from what was expected.

Chancellor Philip Hammond's new policies were overshadowed by the looming negotiations with the EU over a future trade deal, said Stubbs.

"We just don't know how the negotiations are going to be," he added.

Adam Chester, head of economics at Lloyds Bank, said: “The chancellor used this more as a holding exercise ahead of the Budget later this year.”

“The effect of the government’s decisions today was relatively small beer,” he said.

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