Real income to grow next year after long slide

Tim Wallace
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SLOWING inflation and rising pay growth means real incomes are set to grow in 2013 for the first time since 2009, according to a report published today by the Centre for Economics and Business Research (CEBR).

However, the study also warns that this period is only a brief interlude - inflation will once again outstrip wages in 2016 and 2017.

The CEBR expects the economy to pull out of the current double dip recession and grow by 0.5 per cent next year.

And if that happens income growth should accelerate, giving those on the lowest incomes the greatest rise in incomes, while the rich are expected to see a much more modest improvement.

Poorer households should see a 1.5 per cent rise in incomes in 2013, followed by middle-income households with a one per cent rise, and the highest income households - with an average income of £50,000 - expected to see a 0.7 per cent increase.

"Rises in poorer household's incomes will be driven by growth in benefits payments and minimum wages," explained CEBR economist Daniel Solomon.

"Respectively, these are inflationlinked and set by the government based on advice from the Low Pay Commission. On the other hand, richer households will see wages rise more slowly than inflation and don't have the government to set them."

The Bank of England expects consumer price inflation to drop back below its two per cent target by the middle of next year, after almost four full years of staying above target.

However, the expected sharp drop in inflation this year has not all gone to plan - CPI rose from 2.4 per cent in the year to June to 2.6 per cent in the year to July, despite forecasts that it would keep dropping.