In the Resolution Foundation report, economic analyst Nye Cominetti outlines what it expects to happen to wages.
He says: ‘One the one hand, the lesson of the last decade has been that we should stop expecting a return to pre-crisis norms in productivity and pay growth.
‘Forecasts that reflect the last decade’s dismal record, as the OBR and Bank’s forecasts increasingly do, are surely more plausible. And yet, the latest data suggests the OBR are now being overly pessimistic about prospects for pay growth in 2019.
‘And given the tightness of the labour market, we would expect strong nominal pay growth to continue. Unemployment fell again in the latest data, and other measures of labour market slack continue to fall.
‘With this in mind, it seems unlikely that nominal pay growth will drop back below 3 per cent in 2019.
‘The OBR are right about the potential pay-dampening effects of auto-enrolment and the apprenticeship levy, but the effects might simply be smaller or more diffuse than expected. The Bank’s expectation of increasing nominal pay growth in 2019 – a ‘new dawn’ in pay – seems the likelier bet.
‘This is good news. With inflation expected to track down towards its 2 per cent target, this means real pay growth would remain well above 1 per cent.
‘The only other period since the recession with real pay growth above 1 per cent was in 2015-16, and that was largely due to a bout of very low inflation.
‘Today, in contrast, real pay growth is on firmer ground – stemming from higher nominal increases.
‘However, although prospects for the year ahead are positive, the ‘new dawn’ comes with two warning notes. First is that this dawn is still not very bright. Pre-2008, 4 per cent nominal pay growth was the norm – we are heralding 3 per cent.
‘The second patch of darkness is Brexit. The OBR and Bank forecasts discussed here assume a smooth Brexit, and no changes in trading arrangements until 2021. With no withdrawal agreement yet secured, and the March deadline looming, that assumption is increasingly under threat.
‘Perhaps uncertainty is the only sure bet for 2019.’