Storms ahead: Households facing “lost decade” of wage growth

A troubling new report suggests that take-home pay in real terms will remain behind pre-crisis levels until 2017, meaning households are facing a “lost decade” of real wage growth.

The EY ITEM Club report is forecasting that, for the next three years, annual wages will increase significantly less than the 4.5-5% increases that were the norm before the financial crisis.

As a result, consumer spending will not grow as quickly as it used to pre-crisis.

The economic group expects that consumer spending will only increase by around 2% next year and the year after. That compares with the average 3.7% annual growth in consumer spending we were seeing before the crisis.

Consumer businesses are likely to face continuing difficulties in the coming years as purse strings are drawn tight.

People in their twenties and thirties will be particularly hard hit due to the difficulty of saving for a house deposit and high unemployment, EY ITEM Club is predicting.

Martin Beck, senior economic advisor to the EY ITEM Club, said: “Total household incomes have strengthened because more people are in work but individuals do not have extra money in their pockets.

“Real wages are being held back by strong growth in the supply of workers and the fact that firms are facing increased non-wage costs, such as new pension schemes. We expect this trend to continue for several years to come and it will be mirrored with a slowdown in consumer spending growth.”