Employee pay will return to pre-crisis levels by 2017 if current economic trends continue, a think tank has predicted; however, rising inflation and pension deficits risk pushing the prediction off-course.
The latest research by the Resolution Foundation predicts that average weekly earnings grew by between 2.7 per cent and 2.8 per cent in the three months to July, the joint fastest level of growth recorded in the past eight years.
If this rate persists, which is above the post-crisis trend of 2.2 per cent, then average pay will return to pre-crisis levels in mid-2017.
Low inflation and the surge in wages is helping Britain recover from a six-year squeeze on salaries, Resolution chief economist Matthew Whittaker said.
Mr Whittaker added: “Britain’s pay recovery has settled in at a healthy 2.8 per cent, helped along by historically low inflation. After six years of falling real pay, this period of catch-up growth is very welcome for workers.
“But it may prove short-lived once inflation picks up. Even in the optimistic scenario in which wage growth remains above-trend, it will be 2017 before the pre-crisis average pay level is restored, a decade of lost growth.”
The Resolution Foundation has also warned that as much as one percentage point could continue to be knocked off annual pay rises because firms need to plug holes in the pension pots of retired staff.
The report says the blame lies with the retired baby boomers and their employers who failed to ensure enough funds went into their final salary schemes during their working lives. The deficit-ridden schemes, it said, must now be filled from company cash flows, denying today’s workers a proportion of the forecast wage rises.
The think tank says that to keep wage growth rates up, the Government will also need to take steps to boost Britain’s low productivity rate.
A Treasury spokesman said: “The hard work on the economic recovery is now paying off as people see their pay packets growing – and the new national living wage will help that further.
“But the job is not yet done, which is why we need to continue working through the plan to build a more resilient economy.
“As the Resolution Foundation says, Britain must address its productivity record, which is why the government launched the Productivity Plan in July – our blueprint to fix the foundations of our economy to secure the prosperity and livelihoods of generations to come.”