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IPPR - Proposed public sector pay rises not enough to restore link between economic growth and earnings

New analysis for the IPPR Commission on Economic Justice finds that rising import prices have driven a permanent wedge between economic growth and wages for the first time.

Wages have consistently fallen behind economic growth since 2010, the longest period on record. New analysis by IPPR shows this is caused by a loss of value in the pound following the financial crisis.

The announcement of pay rises for police and prison staff of 2 per cent or less will not be enough to make up for the rise in CPI inflation to 2.9 per cent, driven by a second collapse in sterling following last year’s Brexit vote.

IPPR Senior Economic Analyst, Alfie Stirling, said:

“The UK economy no longer translates economic growth into rising earnings. Because consumer prices in the shops are rising faster than the value of products and services we produce and deliver in the UK, the link between economic growth and real terms pay has broken.

“If you adjust GDP growth by the real prices people pay on the high street, the economy is still below 2007 levels. People haven’t felt the recovery because, in many ways, there hasn’t been one.”


Notes to Editors:

  1. The full analysis can be found on the IPPR website here
  2. The following chart shows that ‘decoupling’ of GDP per employee and average earnings is driven by the difference in domestic and consumer prices

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