Wages to rise ahead of inflation but boom time far off

WAGES will increase ahead of inflation for the first time since 2007 this year but “boom time” pay growth remains a distant prospect, according to a new study.

A special report on the labour market by EY Item Club forecasts a pick-up in pay growth to 1.9 per cent this year, delivering real terms earnings rises amid low inflation – which is expected to turn negative for part of 2015.

But it predicts that while wage growth will continue to accelerate in coming years, it will remain short of the pace achieved in the decade before the financial crisis, held back by a growth in the labour force swollen by immigration and more older workers.

The report forecasts pay to grow 3.7 per cent in 2018, 0.7 per cent short of the pre-crisis average.

Mar tin Beck, senior economic adviser to the EY Item Club, said: “Real earnings have fallen by nearly 10 per cent since 2008, but workers will finally see more money in their pockets this year.

“We don’t expect a return to boom time wage growth any time soon. Employment will continue to be strong, but wage growth will remain relatively modest.”

However, it comes as separate research for the TUC suggested that more than half of workers in some parts of the country are earning less than the living wage.

The report showed that one in five jobs in Britain pays less than the £9.15 an hour in London and £7.85 elsewhere – well above the national minimum wage of £6.50.

In some areas, including parts of Birmingham, just over half of workers receive less than the living wage, rising to almost two thirds of women, said the report.