Households look set to struggle for longer after the Office for Budget Responsibility (OBR) revealed average wages are not expected to reach pre-reces…
Households look set to struggle for longer after the Office for Budget Responsibility (OBR) revealed average wages are not expected to reach pre-recession levels until 2018.
This represents a 12-month delay on the original timeframe and means consumers will have to manage an increase in the cost of living without a noticeable boost in their take-home pay.
Indeed, by 2018 the median wage – which is the pay of a typical worker – is expected to be at around 2003's levels, meaning employees will have suffered 15 lost years as far as their financial standing is concerned.
Matthew Whittaker, senior economist at the Resolution Foundation, said there is "a lot of ground to make up".
"For typical workers, pre-recession pay levels are unlikely to return before the end of the decade. While employment is forecast to continue rising, the lack of productivity growth raises questions over the sustainability of the recovery," he added.
This demonstrates the precarious situation facing many households in the UK, as they are stuck with below-inflation wage increases at a time when many of life's essentials – such as energy and food – continue to rise steeply.
Analysis by the Resolution Foundation has found the median weekly wage is expected to be £430 in 2018, which is still below the 2008 level of £454.
Chief executive of the thinktank Gavin Kelly, writing in the Financial Times, pointed out that one-sixth of UK debt is held by consumers with less than £200 a month disposable income left after paying off essentials.
On top of this, nearly a third of mortgage debt belongs to households that have borrowed more than four times their income, so if interest rates do eventually rise from their record low, these individuals could face significant strain.
This is why debt management is so important, as people need to be in control of their financial situation to deal with any unexpected changes in their personal circumstances.
By Joe White