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Pay finally set to pass 2008 peak next year

Oscar Williams-Grut
·Senior City Correspondent, Yahoo Finance UK
Horse Racing - Cheltenham Festival - Cheltenham Racecourse, Cheltenham, Britain - March 12, 2019   A racegoer holds money at the Cheltenham Festival   Action Images via Reuters/Paul Childs
A racegoer holds money at the Cheltenham Festival. Photo: Action Images via Reuters/Paul Childs

Real earnings are set to finally pass the peak reached just before the financial crisis, according to an influential think tank.

The Resolution Foundation said on Friday that strong pay growth in 2020 is likely to bring an end to 11-years of lower living standards in the UK.

“2020 will be a symbolic year for the UK’s post-crisis economic history, with average pay packets finally set to surpass their April 2008 peak at the start of the year,” the think tank wrote in its employment outlook report.

Average real earnings, which are adjusted for inflation, fell in the wake of the global financial crisis and have struggled to recover.

However, a jobs ‘miracle’ in recent years has led to an uptick in pay growth. Wage growth hit its highest level since 2008 earlier this year, spurred by a record high employment level of 76.2%.

Real earnings are still below their 2008 peak. Photo: ONS
Real earnings are still below their 2008 peak. Photo: ONS

The Resolution Foundation said wage growth is likely to continue next year, pushing real earnings above their pre-crisis peak. But the think tank warned the UK’s labour market may have peaked.

“Several clouds [are] on the horizon in the shape of falling vacancies and slowing economic growth (both here and across the world), which are feeding into weaker demand for labour,” the Resolution Foundation report said. “This seems reason enough to think that the labour market will weaken next year.”

The strength of the jobs market means that even a modest slowdown shouldn’t be enough to derail earnings growth.

Torsten Bell, chief executive at the Resolution Foundation, said: “The future is an uncertain land, but our best guess is that 2020 will be very different from the last few years.

“We may well see a welcome return to record pay levels, but a less welcome retreat from record employment, with worrying signs including falling vacancies and rising youth unemployment.”

Bell called for the government to do more to support business investment, which should support long term growth in job numbers.