UK pay hots up even as economy cools

Wage growth is outpacing price rises by the biggest margin since before the financial crisis, official data will show this week, reports The Telegraph.

Economists expect average weekly earnings, excluding bonuses, to have grown by 2.9 per cent in the three months to July compared with a year ago, following growth of 2.8 per cent in the quarter to June. With inflation at just 0.1 per cent in July, in real terms, it would be the joint-highest increase since September 2007, matching growth seen this summer.

“After six years of falling real pay, this period of catch-up growth is very welcome for workers,” said Matthew Whittaker, chief economist at the Resolution Foundation.

However, Mr Whittaker highlighted that even if real wage growth remained above its trend of 2.2 per cent before the financial crisis, the pre-crash average pay level would not be surpassed for two more years.

“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,” he said.

Total pay is expected to have grown by 2.5pc in the quarter to July, from 2.4 per cent in June, while the unemployment rate is forecast to remain at 5.6 per cent.

Official data are also expected to show inflation fell back to zero in August, with a handful of economists predicting that Britain dipped back into deflation last month. A renewed fall in oil prices, which pushed down costs at the pumps by 3pc in August compared with July, is expected to knock 0.05 percentage points off the headline inflation rate alone.

Mark Carney, the Governor of the Bank of England, said in August that it “wouldn’t be surprising if we have another month or two of negative inflation”. However, he also said this would represent a “dividend” for households.