Wages are set to rise above inflation for the first time in almost six years, according to economic forecaster the EY Item club.
A “long period of low inflation” means average earnings could rise faster than the cost of living as early as this April, the report predicts.
EY believes low inflation and a strong pound will keep the interest rate rise on hold until the end of 2015 and most of the growth will continue to be driven by consumer spending.
The report says:
“We expect wage growth to overtake CPI inflation as early as April.”
“Until now the recovery has been financed by a fall in the amount households save, but it appears to be moving to a firmer footing,” said Peter Spencer, the club’s chief economic advisor.
“The consumer upturn will be given a boost from real wages and rising employment, while investment is finally kicking in.”
Mr Spencer added that we are “set for a long period of low inflation” due to largely absent pressures from commodity prices. Falling petrol, energy and food prices, driven by a stronger pound, will also help keep the cost of living down for a sustained period.
The report also predicts the recent soar in house prices, particularly in and around the London area, will be dampened by tighter mortgage lending criteria, due to take effect from 26th April. Furthermore, the UK unemployment rate, currently at 7.2%, to expected to fall to 6.5% by the end of the year and 6% by the end of 2015.
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