The Bank of England's top economist today hailed a "new dawn" for wage growth after a "lost decade" for British workers' pay packets.
Andy Haldane said that average weekly earnings growth had shown a "clear rise" and that other indicators of labour market tightness have increased to historically high levels.
The Bank of England and other economists have been puzzled by the lack of pay growth in recent years despite a continually falling rate of unemployment, which is now at a four-decade low of four per cent. Inflation-adjusted pay remains around 3.7 per cent lower than it was 10 years ago, at the start of the global financial crisis.
However, Haldane, an influential member of the interest rate-setting monetary policy committee (MPC), gave an upbeat assessment of the prospects for pay, justifying the Bank's recent decision to increase bank rate in spite of relatively weak growth figures.
Speaking at a conference in London, Haldane said: "I think there is more compelling evidence of a new dawn breaking for pay growth, albeit with the light filtering through only slowly."
Inflation is currently well above the Bank's two per cent mandated target thanks "entirely" to the effects of sterling's depreciation after the June 2016 EU referendum, but Haldane pointed to a broad range of indicators suggesting pay will pick up.
Private-sector wage growth has passed three per cent annually, while a public-sector wage freeze enforced by the government under austerity to cut public borrowing is slowly lifting, he said.
Haldane also highlighted the importance of government reforms to boost skills and the economy's structure, in the week that he was appointed by the government to head its new industrial strategy council, in a bid to improve the UK's productivity.
Structural changes to the labour market, such as the fall in the power of unions and changes to employment such as "zero-hours" contracts have held back overall pay. Meanwhile, the 10-year period of weak productivity growth has been a key factor in stopping growth in pay packets.
"That second 'lost decade' goes a long way towards explaining the lost decade in pay," Haldane said.