A think-tank has announced that Britons are facing at least a decade of hardship and loss of wage growth. The findings indicate that by 2021 UK workers won’t be earning any more than they were in 2008, and that the workforce is currently facing their worst period in terms of pay for at least 70 years.
Institute for Fiscal Studies head Paul Johnson, speaking on the issue, stated that, “One cannot stress enough how dreadful that is — more than a decade without real earnings growth.” The predictions are based on the analysis of the Office for Budget Responsibility’s latest findings on the official economic forecast.
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The financial crisis hit real wages very badly, and the recent Brexit vote has led to a decidedly darker turn for the OBR’s most recent forecasts.
From 2008 to 2013, the average wage fell by 9%, due to the total failure of wages to keep up with inflation. Prior to the Brexit vote, the OBR were expecting the growth of earnings to be slow in the coming years, estimating they would return to the level enjoyed in 2008 by 2020.
Back in February, the Bank of England stated wage growth was “weaker than anticipated“, citing the causes as:
- Low inflation
- Increase in labour supply
- Tax changes
None of those factors have improved the outlook since, and Brexit has darkened the mood further.
The most recent forecast, however, has predicted that in the wake of the Brexit vote, both wage growth and productivity will take a severe hit, as the decline of the pound following the vote is only going to increase inflation. The result is a predicted stall in the growth of wages next year.
We must now be prepared to wait until at least 2021 to see average earnings return to the levels we saw in 2008.
Johnson emphasised the issue by further stating that “half of the wage growth projected for the next five years back in March is not now projected to happen.”
Given the country is facing considerable cuts in benefits and a simultaneous plateau in wage growth, the standard of living in the UK is going to take a heavy hit. The think-tank’s analysis indicated that income can only be expected to grow by 0.2% between 2015 and 2020. The rate of growth from 2010 to 2014 was already a sluggish 0.5% and this further dip will doubtless leave many floundering against the cost of inflation.
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