UK’s real wages to hit lowest point in 210 years by 2021, warns think-tank

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The latest fall in real wages reflects mounting pressure on household budgets as sharp drops in the value of sterling since last year’s Brexit referendum drive up the cost of imported goods, leading to higher prices in the shops.

If real wages in the UK continue to decline at current rates, they will hit the lowest point in two centuries by 2021, a think tank has warned.

Rising inflation, the pending Brexit negotiations and fallout from the General Election are all contributing to an unprecedented squeeze on pay, according to the Resolution Foundation. In fact, the body’s economic analyst Stephen Clarke indicated that the squeeze looks set to be longer and deeper than many had originally expected, with no sign that pay will match current inflation rates any time soon.

“The uncertain political environment, coupled with Brexit negotiations…, is already having an impact on sterling and could create further inflationary pressures down the track,” he added.

The statement came as the Office for National Statistics (ONS) revealed that regular pay adjusted to take into account the impact of inflation fell for the third month in a row, dropping 0.6% year-on-year in the three months to April. It was the weakest data since the summer of 2014 and followed a 0.4% slowdown in the three months to March.

When adjusted for inflation, UK workers are now earning £15 per week less after tax and deductions than they were in March 2008, six months before the collapse of Lehman Brothers and the start of the global financial crisis.

The latest fall in real wages reflects mounting pressure on household budgets as sharp drops in the value of sterling since last year’s Brexit referendum have driven up the cost of imported goods, leading to higher prices in the shops.

The ONS said that before inflation, regular pay growth excluding bonuses fell to 1.7% year-on-year in the three months to April, making it much weaker than the 2% expected by economists.

Ian Brinkley, acting chief economist at the Chartered Institute of Personnel and Development, warned that such trends were likely to persist as its labour market surveys indicated that employers expected to offer no more than basic pay awards at below inflation rates.

“The sharp fall in earnings growth is remarkably broad-based, which is due to a combination of persistently low productivity growth and a fall in confidence among employers about future prospects for demand in the UK economy,” he said. “The only sustainable solution to weak pay growth is to address the fundamental cause, which is the UK’s poor productivity performance.

Key issues here included managerial quality, skills development for the whole workforce, and work organisation and progression – and the new government should not allow itself to be distracted from tackling them by short-term political uncertainty and the Brexit negotiations, Brinkley added.

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