Alongside strong employment growth and virtually zero inflation, households are now enjoying a significant recovery in wage growth. Annual growth in average weekly earnings excluding bonuses picked up to 2.7% in the three months to April – the strongest rate since February 2009. And in real terms, earnings are now increasing at pre-crisis rates – indeed, annual growth in real earnings was last this strong in September 2007. Granted, inflation will pick up sharply around the turn of the year and sustained growth in real pay will require productivity to finally recover. But we think there is considerable scope for productivity to revive over the next couple of years, thereby underpinning a robust recovery in consumer spending.
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