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The pay squeeze is likely to get worse before it gets better next year, according to the Resolution Foundation.
In its latest Earnings Outlook, which draws on ONS and OBR data, it forecasts that 2018 will mark the end of the pay squeeze, but not the start of a meaningful recovery in pay packets since it says real wage growth is set to be zero over the year as a whole.
The Foundation projects a tightening of the pay squeeze at the start of 2018, with no noticeable wage growth until the end of the year.
It also says that data shows over a quarter (27 per cent) 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 per cent). Over a third of the poorest households think their situation will worsen (35 per cent), compared to just one in six of the richest households (17 per cent).
It adds that ongoing benefit cuts will also play a big part in living standards prospects for millions of low and middle income families.
The Foundation’s outlook also highlights some reasons for optimism. The lowest paid workers are set for a pay rise of 4.3 per cent in April as the National Living Wage reaches £7.83. It also notes an implied pick-up in productivity growth to 1.2 per cent in the three months to October which it says marks the strongest growth since the end of 2005 and which might lead to pay rises.
It also suggest pay inequality might fall due to the rise in the National Living Wage and that disadvantaged groups such as single parents will find it easier to find jobs.
Torsten Bell, 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. 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.”
Meanwhile, another report out this week from the IPPR warns that automation is more likely to affect lower-skilled jobs in the coming decades and says only higher-skilled workers will be able to command better wages. It calls for the Government to oversee a “managed acceleration” of automation in the workplace and ensure robotics and artificial intelligence do not drive up wealth inequalities.