In the Budget Philip Hammond said rising real wages were ‘most important’ – what happened?
8 March 2017, Philip Hammond’s Budget Speech:
And most importantly, Mr Deputy Speaker, despite higher-than-target inflation, real wages continue to rise in every year of the forecast. [my emphasis]
12 April 2017, only five weeks later, statistics from ONS Labour Market statistics release show:
- on the single month measure, real wages in decline by -0.4%, with average weekly earnings (regular pay) growth of 1.9% outstripped by CPI inflation of 2.3%
ONS headline calculations for real pay rates operate on three monthly averages; on this basis they show annual real earnings growth using CPI inflation marginally positive at 0.1% in February 2017. Using RPI, annual real pay fell by -0.7% .
The chart below shows clearly the abrupt shift towards negative territory on these headline rates. The rise in pay since the end of 2014 now looks like a blip, with negative real pay growth the norm since the global recession in 2008 and the subsequent imposition of austerity .
Real earnings, annual percentage growth (three months compared with same three months a year ago)
(Real earnings growth on RPI was positive over 2009 because the sharp interest rate reductions led to negative RPI inflation.)
The OBR’s two forecasts since the referendum showed a marked reduction in the rate of growth of real earnings, so that the lost decade of earnings is now expected to be a lost 13 years (link). But as the chancellor rather prematurely boasted, they have had growth remaining above zero throughout – see table below.
(NB the way the OBR derive average earnings from the national accounts leads to differences with the ONS headline figures.)
The OBR show two marginally negative real earnings figures at the end of 2017, but the suggestion is that they were not expecting weakness so early in the day.
Negative real earnings are not a sign of an economy that is ‘match fit for Brexit’. Unless of course, the Government thinks that Britain can only compete in the world on the basis of a race to the bottom.