Leading think tank says pay is stagnating, as ONS reveals largest hike in inflation in nearly four years

Rising inflation, the impending Brexit negotiations and the fallout from the general election are contributing to an unprecedented squeeze on UK pay, speakers at an event hosted by the Resolution Foundation warned yesterday.  

Torsten Bell, the Resolution Foundation’s director, said that, in the last few years the country has seen a jobs boom and a pay disaster, and warned delegates that real pay is on course to be the worst in 210 years by 2021.

Stephen Clarke, the think tank’s economic analyst, added that the country’s pay squeeze looks set to be longer and deeper than many originally expected, as there is no sign of pay matching the pace of inflation any time soon. 

The uncertain political environment, coupled with Brexit negotiations beginning in six days’ time, is already having an impact on sterling and could create further inflationary pressures down the track,” Clarke noted.

Meanwhile, Paul Gregg, professor of economic and social policy at the University of Bath, warned that, since the last recession and following the Brexit vote, pay no longer seemed to be responding to inflationary shocks.

“Real earnings are going to be more volatile, with the exchange rate risk being passed on to workers,” he said.

Gregg added that earnings growth is the primary source of income growth for the government, so stagnating wages could cause a funding gap in public spending.

The Office for National Statistics (ONS) today announced the consumer price index had increased to 2.9 per cent for the year to May, up from 2.7 per cent for the year to April and the highest level it has been in nearly four years.

Meanwhile, nominal pay has grown just 2 per cent on average over the last three years, while the Resolution Foundation expects ONS wage figures – due to be published tomorrow – to confirm that real pay growth fell by 0.5 per cent in the three months to April.

The Resolution Foundation event also hosted a panel discussion on how the world of work could tackle some of the other challenges currently present in the labour market. 

Matthew Taylor, chair of the Taylor Review into modern employment practices, said “there needs to be a focus on quality, not just quantity”, calling for more of a sector-by-sector approach to solving low pay. “We are hoping that the Low Pay Commission will take on a more active role,” he added.

The panel discussed opportunities stemming from automation. Taylor said there should be less focus on “the big numbers”, but on how automation can be used to improve the quality of jobs – a point Carolyn Fairbairn, director-general of the Confederation of British Industry, agreed with. “Automation and digital technologies allow more opportunities than they do threats,” she said.

There were also calls for greater fairness – both for pay and how workers are treated. “It’s important that fairness and flexibility go hand in hand,” said Fairbairn. “Flexibility has been a catalyst for business investment and innovation but we can’t ignore the challenges facing our labour market. Our ambition should be to build on the strengths of a flexible market.”

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