UK’s real-terms pay growth could slow to less than 1% by end of 2016

Britain’s long-awaited pay recovery this year will quickly evaporate in 2016 unless productivity significantly improves, a leading thinktank has warned.


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The Resolution Foundation said real-terms pay growth could slow to less than 1% by the end of next year, from around 2.5% at present. That would be its worst-case scenario with productivity growth failing to pick up and inflation taking off more than expected.

The warning that 2016 will not experience a repeat of the ultra-low inflation that has helped boost disposable incomes this year follows comments from the Bank of England’s deputy governor, Minouche Shafik, that pay growth has “levelled off”. She would not vote to raise interest rates from their current record low until earnings growth has become established, the policymaker said.

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This year involved the first return to rising inflation-adjusted earnings since the financial crisis.

Shafik’s view chimed with other policymakers and fanned fears that wage growth is faltering due to a combination of factors. Official figures this week are expected to show inflation picked up slightly in November to 0.1%, from -0.1% in October, while City economists polled by Reuters have suggested earnings growth continued to slow in recent months.

There are signs that low headline inflation is making employers less generous and average pay growth has also been skewed by much of the rise in employment being concentrated in lower-paid jobs.

Meanwhile, company managers in some industries feel they cannot afford big pay rises because their productivity – or output an hour worked – is rising so slowly.

Laura Gardiner, senior policy analyst at the Resolution Foundation, said productivity would be crucial for pay prospects next year. “[This year] marked the long-awaited return of rising real pay, following a six-year squeeze. But the recent pay rebound owed much to ultra-low inflation, which we are unlikely to see again next year,” she said as the thinktank released its latest earnings outlook.

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About Kelvin Ching

I'm a professional Forex trader and I have been trading for over 7 years. I was a series 3 broker and a registered CTA with the NFA, the main regulatory agency in the United States, and I have been involved at the highest levels in commodity trading. I also have a background in Information Technology, graphics design, and programming... I'm the co-founder of, a site dedicated to fundamental analysis and news trading.

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