The new OBR forecasts show real wages (average weekly earnings minus RPI inflation) falling by a further 0.7% this year and growing by just 0.1% in 2014.
This is is sharp contrast to their initial forecasts of June 2010 as demonstrated by the chart below. Not only were the real wage falls in 2010 and 2011 larger than anticipated but this was supposed to the year real wages finally started to grow, up by 0.5%. Next year the OBR originally thought that real wages would grow by 1.0% – a forecast now reduced to just 0.1%.
On the OBR’s initial set of forecasts real wages in 2015 would have been very slightly down on their 2009 level, the latest forecasts suggest that real wages in 2015 will fallen by around 9% since 2009.
The squeeze on living standards look set to continue.