Lost decade on pay

Real take-home pay will still lag behind pre-crisis levels in 2017, says a new report from the forecasting group, EY ITEM Club.

Households are facing a lost decade of real wage growth which will mean consumer spending growth will be low by historic standards. Consumer-oriented businesses are facing a challenging environment.

The special report on consumer spending says the supply of workers will continue to grow at a robust rate. Even though the employment rate has already exceeded its pre-crisis peak, the report says that strong growth in employment will continue. As a consequence, it is likely that annual wage growth over the next three years will remain well below the 4.5%-5% rates typical before the crisis.

This will lead to a slowdown in the pace of consumer spending growth, which is only expected to increase by just over 2% next year and the year after. This is a significant reduction on the average annual growth rate of 3.7% seen in the pre-crisis decade.

Martin Beck, senior economic advisor to the EY ITEM Club, said: “Real wages are being held back by strong growth in the supply of workers and the fact that firms are facing increased non-wage costs, such as new pension schemes. We expect this trend to continue for several years to come and it will be mirrored with a slowdown in consumer spending growth.”

www.ey.com/UK/en/Issues/Business-environment/Financial-markets-and-economy/EY-ITEM-Club-special-report-on-consumer-spending---Summary