Yahoo Finance Families face continued wage squeeze with pay growth at standstill
Living standards are set to improve this year, when pay growth takes off and inflation falls - but it is not happening quite yet, economists believe.
Annual wage growth in the three months to December held flat at 2.5pc, official figures are expected to reveal on Wednesday, failing to accelerate for now.
It comes after inflation in January also held up at 3pc in defiance of an expected fall, prolonging the squeeze on family finances.
Andrew Goodwin at Oxford Economics believes earnings growth pay have slowed to 2.4pc as the strong monthly improvement in September’s wages was not repeated in the following months.
“Evidence of escalating underlying inflationary pressures remains largely confined to forward-looking survey data,” he said, noting that upbeat expectations have not yet been followed by positive hard data.
HSBC economist Chris Hare expects a steady rate at 2.5pc with improvement only showing “in the coming months”.
Unemployment should still be on the way down, though potentially by too little to move the rate below its current level of 4.3pc.
George Buckley expects a 150,000 rise in employment on the quarter, and expects private sector pay excluding bonuses - one measure of underlying pay pressures - to accelerate to 2.6pc, hinting at future improvements in the market, “as the economy expands at or modestly above what is believed to be its trend rate”.
Bank of England policymakers have warned that interest rates will have to go up as wage rises show the very low level of unemployment is beginning to stoke inflationary pressures.
A survey of businesses by the Bank indicates wages should grow by more than 3pc in 2018.
But other evidence points in the opposite direction.
The Chartered Institute of Personnel and Development, for instance, surveyed more than 2,000 employers and found they plan to give pay rises of just 2pc this year.
It found 2pc of private employers expect to cut pay this year, 8pc anticipate a wage freeze, 42pc expect to hike pay and 48pc are unsure.
Official data typically shows public sector workers receiving smaller wage increases than their private counterparts, so that factor is expected to pull down the overall increase in earnings and in household living standards again this year.
