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Workers in for a tough five years as earnings growth runs at a trickle

Even by 2017, earnings are likely to grow by far less than their pre-financial crisis average

New Cebr forecasts show that employee earnings growth will be incredibly weak for years to come. The forecasts are released as part of the economics consultancy’s quarterly UK Prospects report.

While tomorrow’s GDP figures are expected to show that the UK has finally exited recession, the underlying data on the economy remain weak.

Although employment reached a record high recently, this has been almost entirely driven by part-time job creation. The number of full-time employees in the economy is still nearly 700,000 lower than during the previous peak in employment.

With so much slack in the labour market, average gross earnings will grow at a snail’s pace over the next five years. Average gross earnings (including bonuses) are expected to grow by just 2.2% next year, following on from dismal 1.5% growth in 2012. Even in 2017 growth of just 3.0% is predicted.

These growth rates are well down on the pre-financial crisis average of 4.3%, meaning that employee spending power will be under immense pressure over the coming years. Were it not for a record £1,100 increase in personal allowances next April, which provides a significant £220 boost to disposable incomes for most workers, the outlook for workers would be even worse.

Scott Corfe, Cebr Senior Economist and main author of the report, said, “Weak economic growth over the coming years means that employee pay rises will remain very modest.

“High levels of part-time employment mean that, while unemployment has fallen recently, there is still substantial slack in the labour market. The labour market remains a buyers’ market with little pressure for firms to increase salaries”

Douglas McWilliams, Chief Executive at Cebr, said, “Employers seem to be behaving differently in this economic crisis than in previous crises. Instead of laying off staff, they’re cutting hours and restraining pay to contain costs and retain skills.

“While this means that unemployment is lower than previous crises would predict, it also means earnings growth will remain incredibly weak for an incredibly long period of time.”

Cebr was voted the best GDP forecaster for 2011 by five independent assessments.

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