Workers are set for their biggest pay rises since before the financial crisis as the squeeze on living standards comes to an end, according to the Bank of England.
It said average wages are likely to increase by between 2.5 and 3.5 per cent next year.
The last time pay for a typical worker rose by more than 3.5 per cent was in the summer of 2008 before the meltdown in the banking system plunged the economy into crisis.
The report came days after the Bank raised interest rates for the first time in more than a decade and said the worst of the squeeze on family finances was over.
Workers are set for the largest pay rise since the financial crisis and it said average wages are likely to increase by between 2.5 and 3.5 per cent next year
Governor Mark Carney warned a further two rises will be needed over the next three years, taking rates up to 1 per cent in 2020, when inflation is expected to fall back towards the 2 per cent target
Outlining its latest forecasts for the economy last week, the Bank said inflation was likely to have peaked at 3.2 per cent in October and would fall to 2.4 per cent next year and 2.2 per cent in 2019.
The upbeat outlook was underlined by yesterday’s report from the Bank’s regional ‘agents’, seen as its ‘eyes and ears’ around the country.
In their latest summary of business conditions, they reported that ‘recruitment difficulties had intensified’ as companies struggled to find new staff, having seen unemployment fall to a 42-year low of 4.3 per cent.
‘As a result, pay growth had edged up and was expected to be somewhat higher in 2018 than this year,’ they said.
The report added that expectations among firms surveyed by the agents were for next year’s pay settlements to be ‘clustered around 2.5 per cent to 3.5 per cent rather than 2 per cent to 3 per cent during 2017’.
That will come as a relief to workers who have been hit by a double whammy of weak wage growth and rising inflation over the past year.
Alan Clarke, an economist at Scotiabank, said: ‘Early clues on the crucial early pay settlements for 2018 are looking higher – the highest since before the 2008 crisis.’
Tycoon calls time on Brexit fearmongers
JD Wetherspoon chairman Tim Martin yesterday criticised senior businessmen for ‘factually incorrect and highly misleading’ warnings over Brexit
The boss of one of the country’s biggest pub chains yesterday criticised senior businessmen for ‘factually incorrect and highly misleading’ warnings over Brexit.
JD Wetherspoon chairman Tim Martin said claims by the bosses of firms including Sainsbury’s that prices would go up if Britain leaves the EU without a deal were ‘completely untrue’.
He added adopting World Trade Organisation rules after Brexit would allow Britain to scrap EU food tariffs on goods imported from overseas, reducing the average cost of a meal in a Wetherspoon pub by 3.5p and a drink by 0.5p.
He also accused Carolyn Fairbairn, head of the Confederation of British Industry, of seeking to ‘create a misleading impression’ on Brexit.
He said some bosses believe ‘staying in the EU for an additional two years is necessary to avoid a “cliff edge”’, but added: ‘There is no cliff edge.’
The Bank raised interest rates last week from 0.25 to 0.5 per cent in a bid to bring inflation back under control. It was the first rate rise since 2007.
Governor Mark Carney warned a further two rises will be needed over the next three years, taking rates up to 1 per cent in 2020, when inflation is expected to fall back towards the 2 per cent target.
Matt Whittaker, chief economist at the Resolution Foundation think-tank, said yesterday’s report was ‘good news for workers’, but added pay growth of 2.5 to 3.5 per cent was ‘some way below the pace of growth we were used to before the financial crisis’.
The Bank’s report found manufacturing output is up, helped in part by the fall in the pound, while business investment growth is expected to be ‘modest’ in the coming year.