Workers to suffer falling real pay until late 2013

Tim Wallace
Follow Tim
THE SQUEEZE on earnings will not stop until 2013, which means consumption will do little to help an economic recovery, according to the Office for Budget Responsibility’s forecasts published yesterday.

Once inflation is taken into account, real earnings fell by 2.3 per cent in 2011 – “a post-war record”, said OBR boss Robert Chote.

Consumption was squeezed as a result, with average forecasts in the three months to November putting it one per cent lower over 2011, compared to March’s forecasts of consumption rising by 0.8 per cent in the year.

The crippling combination of high inflation and low wage rises will only begin to lift in 2013.

“We do not expect earnings to outpace prices again by a significant margin until 2014,” Chote announced yesterday.

Consumer price inflation is set to plummet next year, from a high of 5.2 per cent in September 2011 to roughly its target level of two per cent by late 2012.

Rising wages will eventually drive a rise in house prices, the OBR believes.

“We assume that house price inflation recovers over 2013 and rises broadly in line with the long-term average rate of earnings.”