People should not expect pay rises above inflation this year as the stagnation in wages is set to continue until the end of 2018, according to a leading thinktank.
The pay squeeze is likely to get worse before it gets better, with no meaningful recovery in wage packets before the end of next year, the Resolution Foundation found.
Real wage growth is expected to be zero over the course of 2018 as a whole, meaning the pressure on living standards is set to continue.
Inflation started outstripping pay rises at the beginning of 2017, marking a return to the pay squeeze that took hold after the financial crisis and finally began to ease in 2015.
The Resolution Foundation said there was some cause for optimism about the year ahead as there were signs that the pressure on pay could start to lift towards the end of 2018.
It also highlighted the rise in the minimum wage for the lowest-paid workers, who will see their hourly rate rise by 4.3% in April to £7.83, and a pick-up in productivity growth to 1.2% in the three months to October, which is likely to herald pay rises to come.
Torsten Bell, the director of the Resolution Foundation, said 2017 was a “tough year for living standards as the pay squeeze returned”.
“The good news is that things will get better next year,” he said. “The bad news is we may only go from backwards to standing still, with prospects for a meaningful pay recovery still out of sight.
“And while the public have famously defied recent gloomy economic predictions and continued to spend, public expectations do appear to be moving in line with experts’ pessimistic predictions. Over half expect no pay rise next year and households are just as likely to expect their financial situation to get worse as improve next year. This pessimism is strongest among those on lower incomes, unsurprisingly given big benefit cuts set to take place.”
It also found that public expectations of pay rises are low, with more than half not expecting a pay rise next year, according to its analysis of Bank of England data.
More than a quarter – 27% – of working age households expect their financial situation to worsen in the coming 12 months, roughly the same as the proportion who think it will get better – 28%.
More than a third of the poorest households think their situation will worsen – 35% – compared with just one in six of the richest households – 17%.
A separate survey by Lloyds has found men are expecting to get bigger pay rises over the next year than women.
On average, men predict their annual income to grow by £770.50 by the end of 2018 while women only expect their pay to rise by £429.70, according to the bank’s spending power report.
The survey of more than 2,000 people from across the UK in November found 63% feel negative about current levels of inflation, a sharp increase of 14 percentage points since November 2016.
Two-thirds feel negative about the UK economy, up five percentage points on a year earlier, and a similar proportion – 65% – feel not good or not good at all about the housing market, up six percentage points on a year earlier.