Average real wages are still at 2004 levels and it will take until 2020 before they return to their 2009 peak, according to the National Institute of Economic and Social Research (NIESR).
Angela Monaghan
The Guardian, Friday 7 February 2014
Britons will have to wait six more years before their inflation-adjusted wages are back at pre-crisis levels and it "feels" like recovery, a leading thinktank has warned.
Average real wages are still at 2004 levels and it will take until 2020 before they return to their 2009 peak, according to the National Institute of Economic and Social Research (NIESR).
"It's a long way off," said Simon Kirby, principal research fellow at the thinktank. "It will take a number of years before people actually start to feel the recovery."
The gradual rise in wages could take even longer if Britain's productivity performance, which has been "abysmal" in recent years, did not improve, he said.
NIESR's stark reminder of the continued squeeze in UK living standards came despite it upgrading its forecasts for growth in the broader economy. It said in its quarterly review that recovery appeared to be "entrenched" following annual growth of 1.9% in 2013.
It is now expecting growth to accelerate to 2.5% in 2014, significantly higher than its November prediction for this year of 2%.
The revised figure would put growth in Britain ahead of the average for the major developed nations among the members of the Organisation for Economic Co-operation and Development.
UK GDP is expected to return to its pre-crisis peak in the third quarter of this year, and NIESR forecasts growth of 2.1% in both 2015 and 2016.
The main driver of the upwardly revised forecast is consumer spending, which is expected to rise by 3.4% this year – the biggest jump since 2003. NIESR put this down to an "even more buoyant" housing market than it had been predicting three months ago, propped up by government schemes such as Help to Buy.
Average UK house prices will rise by 6.3% in 2014, it has forecast, almost double the rate in 2013 based on a measure used by the Office for National Statistics. House price growth is then expected to moderate to 3.2% in 2015, and between 0.5% and 1% per year over the period 2016 to 2018, as the effects of
temporary policy support diminish and rising mortgage rates from 2015 dampen the market.
NIESR said the domestically driven recovery would also be helped by business investment, which is expected to jump 9.6% this year as the rise in consumer spending makes companies more confident about the prospects for future demand.
Exports are not expected to contribute to overall growth until 2016 as domestic demand for UK and imported goods outweighs foreign demand for UK goods. "The hoped-for balanced recovery has yet to appear," Kirby said. "In the near term, we expect the deficit on the UK's external trade balance to widen."
NIESR said that the faster-than-expected fall in unemployment in Britain had been "a welcome surprise", but criticised the Bank of England's confusing message over forward guidance, under which the Bank said it would not consider raising interest rates until the unemployment rate has fallen to 7%.
When the Bank's governor, Mark Carney, announced this in August, policymakers were not expecting the jobless rate to fall to 7% until 2016. It is now 7.1% and expected to fall below 7% within a matter of weeks.
However, NIESR is not expecting the Bank to raise interest rates until the second quarter of 2015. Rates have been on hold at an all-time low of 0.5% for five years.
"I don't think the Bank of England is going to take a risk with a relatively weak recovery by historical standards. However, Bank communications have added to rather than reduced uncertainty about forward guidance in the future. Whatever approach the MPC takes, it risks some loss of credibility," Kirby said.
The Bank is expected to clarify its position next week when it publishes its updated forecasts in the February inflation report. It left interest rates on hold at its February policy meeting on Thursday.
NIESR said it was as yet unclear what impact recent volatility in some emerging market economies would have on the UK and other developed economies.
It is predicting global growth of 3.7% in 2014 and 2015 - an improvement on growth of 3.1% last year "but still a sluggish recovery by historical standards".
Angela Monaghan
The Guardian, Friday 7 February 2014
 |
| The Bank of England's Governor Mark Carney, last year said he was not expecting the jobless rate to fall to 7% until 2016. It is now 7.1%. Photograph: Reuters |
Average real wages are still at 2004 levels and it will take until 2020 before they return to their 2009 peak, according to the National Institute of Economic and Social Research (NIESR).
"It's a long way off," said Simon Kirby, principal research fellow at the thinktank. "It will take a number of years before people actually start to feel the recovery."
The gradual rise in wages could take even longer if Britain's productivity performance, which has been "abysmal" in recent years, did not improve, he said.
NIESR's stark reminder of the continued squeeze in UK living standards came despite it upgrading its forecasts for growth in the broader economy. It said in its quarterly review that recovery appeared to be "entrenched" following annual growth of 1.9% in 2013.
It is now expecting growth to accelerate to 2.5% in 2014, significantly higher than its November prediction for this year of 2%.
The revised figure would put growth in Britain ahead of the average for the major developed nations among the members of the Organisation for Economic Co-operation and Development.
UK GDP is expected to return to its pre-crisis peak in the third quarter of this year, and NIESR forecasts growth of 2.1% in both 2015 and 2016.
The main driver of the upwardly revised forecast is consumer spending, which is expected to rise by 3.4% this year – the biggest jump since 2003. NIESR put this down to an "even more buoyant" housing market than it had been predicting three months ago, propped up by government schemes such as Help to Buy.
Average UK house prices will rise by 6.3% in 2014, it has forecast, almost double the rate in 2013 based on a measure used by the Office for National Statistics. House price growth is then expected to moderate to 3.2% in 2015, and between 0.5% and 1% per year over the period 2016 to 2018, as the effects of
temporary policy support diminish and rising mortgage rates from 2015 dampen the market.
NIESR said the domestically driven recovery would also be helped by business investment, which is expected to jump 9.6% this year as the rise in consumer spending makes companies more confident about the prospects for future demand.
Exports are not expected to contribute to overall growth until 2016 as domestic demand for UK and imported goods outweighs foreign demand for UK goods. "The hoped-for balanced recovery has yet to appear," Kirby said. "In the near term, we expect the deficit on the UK's external trade balance to widen."
NIESR said that the faster-than-expected fall in unemployment in Britain had been "a welcome surprise", but criticised the Bank of England's confusing message over forward guidance, under which the Bank said it would not consider raising interest rates until the unemployment rate has fallen to 7%.
When the Bank's governor, Mark Carney, announced this in August, policymakers were not expecting the jobless rate to fall to 7% until 2016. It is now 7.1% and expected to fall below 7% within a matter of weeks.
However, NIESR is not expecting the Bank to raise interest rates until the second quarter of 2015. Rates have been on hold at an all-time low of 0.5% for five years.
"I don't think the Bank of England is going to take a risk with a relatively weak recovery by historical standards. However, Bank communications have added to rather than reduced uncertainty about forward guidance in the future. Whatever approach the MPC takes, it risks some loss of credibility," Kirby said.
The Bank is expected to clarify its position next week when it publishes its updated forecasts in the February inflation report. It left interest rates on hold at its February policy meeting on Thursday.
NIESR said it was as yet unclear what impact recent volatility in some emerging market economies would have on the UK and other developed economies.
It is predicting global growth of 3.7% in 2014 and 2015 - an improvement on growth of 3.1% last year "but still a sluggish recovery by historical standards".
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