While the economic recovery appears to have accelerated in Q2, workers are still failing to see the benefits in their pay packets. Annual growth in average weekly earnings fell from 2.2% to -1.7% in April. And while this partly reflected average pay in April 2013 being boosted by some workers delaying bonuses until after the cut in the top rate of income tax, note that the rate excluding bonuses also fell from 1% to 0.4%. We doubt that it will be long, though, before earnings growth picks up. Recent sharp falls in the unemployment rate should begin to enhance workers’ bargaining power, while the 3% rise in the national minimum wage in October will provide further support. So, while a return to pre-recession rates is unlikely soon, pay growth could conceivably reach 2% by the end of this year and 3% at the end of 2015, bolstering the foundations of the consumer recovery.
Become a client to read more
This is premium content that requires an active Capital Economics subscription to view.
Already have an account?
You may already have access to this premium content as part of a paid subscription.
Sign in to read the content in full or get details of how you can access it
Register for free
Sign up for a free account to:
- Unlock additional content
- Register for Capital Economics events
- Receive email updates and economist-curated newsletters
- Request a free trial of our services