UK wages seen rising to near eight years high

Employment figures for April due later this week are expected to show the biggest rise in real wages growth for nearly eight years, according to new analysis.

The data will give George Osborne a post-election lift after a weak first few months of the year that have shown manufacturing output slide backwards and the biggest boost to growth come from the City and the hotel and restaurant sectors.

The Resolution Foundation thinktank predicted that average weekly earnings growth will have jumped to an annual rate of between 2.5% and 2.6% in February-April 2015, compared with 2.2% in January-March.

Combined with inflation falling to -0.1% in April, it means real wages rose by 2.5-2.7%, their fastest rate since October 2007, the study found.

But the wages bonanza could be shortlived if inflation, as is expected, continues to rise during the rest of the year to reach 1.7% next summer, driven by higher oil prices.

The Bank of England is expected to start pushing up interest rates next spring in response to the improving economic outlook, but higher mortgage costs along with other rising prices will eat into real wage growth and disposable incomes.

Analysts have speculated that households have so far refused to spend the gains from higher real wages for fear that they will prove shortlived. A survey found recently that people expected a pay rise of about 1%.

A pay freeze in the public sector, which could be announced as early as next month’s budget, will also depress average wages growth.