British households are set to be £5,000 ($6,138) worse off in the next five years as the U.K. faces a period of wage stagnation unseen since the middle of the last century.
New research from the U.K.’s Institute of Fiscal Studies suggests that Britons’ household incomes will be frozen for the next two years, before rising just four percent by 2021-22.
By this point, median household income will be 18 percent lower than might reasonably have been expected prior to the financial crash of 2007-08, when household incomes were increasing by an average of 2 percent annually, the report claims.
“That 18 percent difference is equivalent to more than £5,000 a year,” says the report penned by IFS research economists Andrew Hood and Tom Waters, in association with the Joseph Rowntree Foundation.
“This sustained slowdown in income growth is unprecedented in at least the last 60 years.”
The estimates are based on earnings forecasts from the Office for Budget Responsibility (OBR). However, even by more bullish estimates, median U.K. incomes in 2021-22 could expect to be 16 percent lower than pre-crisis forecasts, the report claims, pre-empting criticism that it presents an overly “gloomy” forecast.
“Even if real earnings growth each year turns out 1 percentage point faster than the OBR expects – which would imply stronger growth than almost all forecasters expect – median income in 2021–22 would still be 16 percent lower than it would have been had the long-run trend growth rate continued beyond 2007–08,” notes the report.
“And even under such an optimistic scenario, median income would grow by less than 7 percent over the next five years – still slow growth by historical standards.
“Of course, things could instead turn out worse than the OBR expects.”
Given the outlook for wages, the IFS report predicts an increase in inequality with lower-income households expected to fare worse, while pensioner income is set to rise twice as quickly as the rest of the populations’.
Growth in UK living standards hits 60 year low, two year wage freeze expected: IFS – CNBC