Author: Charlie Cooper
LONDON — British workers are facing the most prolonged squeeze on their earnings since World War II, a leading think tank said Thursday, as post-referendum inflation and slower wage growth begin to bite.
Real wages — earnings adjusted to reflect the rising cost of living — will remain lower in 2021 than they were before the financial crisis of 2008, the Institute for Fiscal Studies said in its analysis of Philip Hammond’s Autumn Statement, and the Office for Budget Responsibility’s accompanying forecast.
Paul Johnson, director of the IFS, said the outlook for the living standards of British people had “deteriorated rather sharply” since the OBR’s last forecast in March.
“One cannot stress enough how extraordinary and dreadful that is — more than a decade without real earnings growth,” he said. “We have certainly not seen a period remotely like it in the last 70 years.”
The OBR’s forecast, which predicted that the cost of Brexit for the U.K. — in terms of increased government borrowing over the next few years — would be nearly £59 billion, was criticized by leading Brexiteers who suggested it was unduly negative in its projections.
However, Johnson said the OBR had taken a “somewhat less gloomy” stance than other independent forecasters and the Bank of England. He added that it would be “fairly remarkable” if Brexit did not affect the economy negatively, “at least to some small degree.”
Real average earnings are forecast to rise by less than 5 percent between now and 2021, according to the OBR’s forecast, meaning that they will be 3.7 percent lower than was projected in its March forecast.
“We’ve already seen that we’ve got worse off. The exchange rate has depreciated, that is a fact and that will increase price levels by at least 2 percent,” Johnson said.
“There is more uncertainty that may affect investment. It may make trade more expensive in the long run depending on the deal we come up with. That is not a view about whether we should or shouldn’t stay in the EU, it is really very simple economics that there will be a small cost, at least, to pay for the benefits we get from being outside.”