Wages to overtake prices this year as squeeze on Brits eases

 
Tim Wallace
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PAY WILL finally rise faster than inflation this year, at last ending the long squeeze on British incomes, an influential group of economists has predicted today.

Wages will rise by 1.7 per cent over the year while prices will increase by 1.6 per cent, the EY Item Club forecasts.

As a result the UK’s economic recovery should get a further boost, as households feel more confident and have more money to spend.

“Until now the recovery has been financed by a fall in the amount households save, but it appears to be moving to a firmer footing,” said the group’s Peter Spencer.

“The consumer upturn will be given a boost from real wages and rising employment, while investment is finally kicking in.”

Low inflation and steady growth should also mean the Bank of England will not need to increase interest rates until after the next election, he forecasts.

The economists also think the housing market will not get out of hand, despite the low rates.

Tougher new mortgage lending criteria come into force this month, which may keep a cap on borrowing.

EY’s Item Club predicts house price growth of 7.4 per cent this year, 7.2 per cent in 2015, slowing to 4.2 per cent in 2016.