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Wages in the UK have been falling in real terms since 2010.

Wages in the UK have been falling in real terms since 2010.

Real wage levels fall

Posted: 3rd February 2017

Wages in the UK have been falling in real terms since 2010, the longest period of decline for 50 years, new data from the Office for National Statistics (ONS) suggests.

According to the ONS analysis, real wage growth averaged 2.9% in the 1970s and 1980s, then roughly halved to 1.5% in the 1990s. The rate slowed again to an average of 1.2% in the 2000s, but fell by 2.2% per annum between Q1 2010 and Q2 2016, the longest sustained period of falling real wages in the UK on record.

The ONS said economic activity in the UK fell considerably during the 2008-09 downturn, which put downward pressure on wage rises at a time when price inflation picked up. And even if a person's wage remains unchanged, the effect of inflation implies that their income now buys fewer goods and services, resulting in a fall in their real wage.

The ONS analysis follows a recent report by the Institute for Fiscal Studies (IFS), which claims household income in 2016–14 is more than 6% lower than before the economic crisis hit in 2007–08.

Andrew Hood, one of the IFS report authors, said: “There have been a lot of claims made recently about changes in different measures of incomes and earnings. Our analysis puts together all the information we have to suggest that real median household income is still more than 6% below its peak, but it looks like it stopped falling this financial year.”

Frances O’Grady, the general secretary of the TUC, said: “Over the last four years British workers have suffered an unprecedented real wage squeeze. Worryingly, average pay rises have been getter weaker in every decade since the 1980s. Unless things change, the 2010s could be the first ever decade of falling wages. A return to business as usual may only bring modest pay growth. We need radical economic reform to give hard-working people the pay rises they deserve.”

A recent employer survey from Barclays suggests that 57% of businesses are planning to increase wages in the year ahead, with 39% planning to increase them for their entire workforce.

Kevin Wall, co-head of corporate banking origination, Barclays, said: "After an extended period of wage freezes, which have been tough for employees, it's good to see that so many employers will be increasing wages in the coming year. This can only have a positive impact on employee morale. However, it will increase inflationary pressure as the year progresses."

He added: "Whilst no one knows when interest rates will rise, businesses should not be complacent. It would be prudent for firms to ensure they have sufficient cash flow to absorb the increase when it comes."

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