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Real wages are rising at their fastest rate in two years – but growth remains weak by pre-crisis standards

Real wages grew by 1.2 per cent in the three months to December 2018, as a tight labour market continues to deliver on both job quality and quantity, the Resolution Foundation said today (Tuesday) in response to the latest labour market figures.

The Foundation says that real wage growth is on course to strengthen further to around 1.5 per cent in the coming months – the fastest growth since the EU referendum.

It notes that this would leave pay growth still well below the pre-crisis trend of 2.3 per cent however, and warns that the UK’s continuing poor performance on productivity, which was down 0.2 per cent year-on-year at the end of 2018, may limit the scope for faster pay growth.

The encouraging news on pay came alongside good news on both job quantity – as employment rose by 167,000 and inactivity fell to record lows – and job quality – as the share of workers on Zero-Hours Contracts at the end of 2018 was down 57,000 on the previous year.

The Foundation says that while recent labour market news is encouraging, the bigger picture on living standards in recent years has been disappointing. It pointed to the fact that average household incomes are around £1,500 a year lower today than they were expected to be before the Brexit referendum, and noted that an increasing number of firms are citing Brexit uncertainty as a source of potential disruption.

Stephen Clarke, Senior Economic Analyst at the Resolution Foundation, said:

“Britain’s long overdue pay recovery is continuing to strengthen off the back of a tight labour market and easing inflationary pressures.

“It’s encouraging too to see a tight labour market also deliver on job quality, with the share of workers on Zero-Hours Contracts falling slightly. However, workers today are still far more likely to be on a Zero-Hours Contract or in low-paid self-employment than they were before the financial crisis – a shift that is looking increasingly permanent.

“Absent external forces, we might expect things to improve still further over the course of 2019. But the combination of Brexit uncertainty and a global economic headwind mean this might prove to be the calm before the storm.”

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