Real wage growth to be the political football next week

10th April 2015 By: Ranko Berich

UK CPI and Average Earnings

As far as the average voter is concerned, real wage growth is the single most important indicator of the UK’s economic recovery, so we can expect next week’s CPI and Average Earnings data to be heavily politicised.

Despite the substantial falls in unemployment seen over recent years, real wages remain some 10% below pre-recession levels. This is the final labour market puzzle for the Bank of England, which plainly expected wages to pick up faster than they did following the recession.

With real wages finally beginning to grow, there is cause for optimism that slack in the labour market is finally running out and that UK workers are in for a robust increase in living standards. The proof, however, is in the pudding, and that makes next week’s hard data unquestionably important.

If wage growth accelerates we can expect to see an increasingly confident Bank of England, alongside more swagger from the government. Further tepid wage growth on the other hand, may provide the coalition’s competitors with some valuable fresh ammunition.