EY predict real-terms wage growth in 2014
Photo Credit: Graeme Darbyshire via Compfight cc

Since the economic turbulence began in earnest in 2007-08, wages have been under considerable pressure, not only because of employers putting a moratorium on pay rises, but also because of high rates of inflation eroding the real-terms value of money.

But it seems there is finally some small cause for celebration, as the spring forecast from the EY ITEM Club is for real-terms wage growth – albeit small – over the course of 2014 as a whole.

The latest forecasts for 2014 predict inflation will reach 1.6% for the year, below the long-term target of 2.0% set by the Bank of England in its ‘Target Two Point Zero’ initiative.

Contrasted against this are forecasts for average salary growth of 1.7% – a small but significant surplus of 0.1% when inflation is taken into account.

This means that, for the first time since the recession began, the rising price of goods will be more than compensated for by earnings growth, meaning households at or above the average salary increase should see their spending power improve.

Peter Spencer, chief economic advisor to the EY ITEM Club, says: “We are set for a long period of low inflation as pressures from commodity prices and the labour market – traditionally the two main suspects in the UK inflation drama – remain largely absent.

“This will allow the MPC to leave interest rates on hold until after the election, helping to stimulate further investment growth and limiting household spending on mortgage payments.”

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