Britain’s long-awaited pay recovery this year will quickly evaporate in 2016 unless productivity significantly improves, a leading thinktank has warned.
The Resolution Foundation said real-terms pay growth could slow to less than 1% by the end of next year, from around 2.5% at present. That would be its worst-case scenario with productivity growth failing to pick up and inflation taking off more than expected.
The warning that 2016 will not experience a repeat of the ultra-low inflation that has helped boost disposable incomes this year follows comments from the Bank of England’s deputy governor, Minouche Shafik, that pay growth has “levelled off”. She would not vote to raise interest rates from their current record low until earnings growth has become established, the policymaker said.
