UK earnings to surpass inflation: are people better off at last?

Earnings are expected to increase faster than inflation when new figures are published this week. The squeeze on budgets in UK households is expected to show signs of easing when new figures are published.

Official data is expected to show that the average weekly earnings of a UK worker rose by 1.8 per cent in the three months up to February, Reuters reports. Since the last consumer price index (CPI) inflation measurements showed that prices had risen by 1.7 per cent, it seems wages are slowly beginning to rise in real terms.

Reuters also suggests that tomorrow’s CPI will show inflation at 1.6 per cent in March. Finally, it appears that the pressure being placed on living costs in the UK is starting to ease. But there is still a lot of work to do.

Before the financial crisis income could have risen by four or five per cent in a year. While that may be unrealistic in the next couple of years, it shows that wage growth is still a long way off earlier highs. What’s more, earnings have been falling for six years and after inflation, growth of 1.8 per cent will still not go far towards getting wages back to that level.

Even so, it is hoped that increasing earnings will become a trend in the next few months. In turn, this could begin to make a real difference to UK workers. If consumer spending also continues to rise as a result, the knock-on effect for businesses could also be considerable.

The latest report from the EY ITEM Club also points to improvement around the UK. As the only other group to base its economic forecasts on the same model as the government, it has found that wage growth will finally exceed inflation.

The EY report predicts that earnings will rise by 1.7 per cent this year, while the CPI will stay at an average 1.6 per cent for the year. Economic growth will also stand at 2.9 per cent across 2014, it finds.

Peter Spencer, chief economic adviser to the EY ITEM Club, says that a number of factors will need to come together to make sure this takes place.

“This benign scenario needs several things to happen – not least that rising consumer spending is supplemented by a rebound in business investment and exports, which official figures suggest are now kicking in.”