Think-tank warns of ‘dreadful’ prospects for UK wages

UK workers are facing the biggest squeeze on their wages in 70 years after a sharp downgrade in the economic outlook, a leading financial think-tank has warned.

London IFS comment on Hammond\'s Autumn Statement
In its review of Chancellor of the Exchequer Philip Hammond's Autumn Statement and the release of growth and borrowing projections from the Office for Budget Responsibility (OBR), the Institute of Fiscal Studies (IFS) said British workers faced the "dreadful" prospect of no real-terms wage growth for a more than a decade.

Real pay in 2021 predicted below 2008 levels

Paul Johnson, IFS director, said that low wage growth and high inflation over the next five years would mean that, by 2021, real pay would still be below 2008 levels. "One cannot stress enough how dreadful that is – more than a decade without real earnings growth. We have certainly not seen a period remotely like it in the last 70 years," he said. In a report published on Wednesday to coincide with Mr Hammond's statement, the OBR said that the outlook for living standards "has deteriorated rather sharply since (its previous forecast in) March". It slashed growth prospects for next year and said the UK faced borrowing an extra £122 billion over the next five years, £59 billion of the shortfall attributed to the referendum vote in June to leave the European Union. 

Hammond comments on Autumn Statement

Asked about the rising debt levels on BBC Radio 4's Today programme on Thursday, Mr Hammond said, "It's not out of control. It's larger than we would like it to be. We should have a plan which both invests in our economy...but also puts a little aside for the possibility of a slightly more rainy day next and the year after, as the OBR forecasts suggest.

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"The OBR itself would say that there is a wide range of uncertainty around its central forecast. It isn't only the uncertainty around Brexit negotiations. There are many factors which are causing uncertainty in economic forecasting at the moment." Later, Mr Hammond added on Sky News, "To me it makes sense, given the warning signals from the OBR report, to keep a little bit of firepower in the locker, to build a little bit of a reserve so that if there is a slowdown next year, we've got enough capacity to support the economy, to protect jobs, to ensure that the economy can get through any headwinds it encounters."Until we get to the end of the negotiation (on Brexit) we don't know what the outcome will be, so the OBR itself has said there was an unusually high degree of uncertainty around the forecasts they have made in the Autumn Statement."

OBR prediction too pessimistic?

Leading pro-Brexit MPs have attacked the OBR prediction as too pessimistic, but the IFS said the growth estimates were more optimistic than other economic forecasts, including from the Bank of England."Overall, despite some of the headlines, I think we can count the OBR as having been modestly upbeat relative to some other forecasters," said Mr Johnson. "Even so, the outlook for living standards and for the public finances has deteriorated pretty sharply over the last nine months. Mr Hammond has responded by increasing capital spending and hence increasing borrowing further."The IFS said that Mr Hammond had adopted new fiscal rules and had abandoned plans by his predecessor, George Osborne, to return the public finances to a surplus by 2020."Given the still very considerable uncertainties over the direction of the economy, he may well find he needs all the headroom he has left himself. It seems right that this autumn statement had the feeling of a wait-and-see fiscal event," said Mr Johnson. "The clear prioritisation by Mr Hammond to direct most of what largesse he felt able to afford to paying for additional investment spending – roads, housing, research and development – to support the economy in the long run, rather than to pay to support the incomes of the (families) just about managing, or indeed public services, in the short run."

Labour say government must be open about Brexit negotiations

John McDonnell, the Labour Party's 'shadow' chancellor, said the government must be open about its negotiating position over Brexit, blaming Prime Minister Theresa May's secrecy about her intentions for worsening the economic damage from the referendum result."We can't do these negotiations without openness and transparency. People need to know where is the government going and how is it going to get there," he said. "At least then you stabilise things and people will be able to settle down into serious negotiations and we will get the best deal. Until the government gets to that position, we are going to have these uncertainties and this speculation."However, former Cabinet minister and Brexit supporter Iain Duncan Smith said the OBR's forecasts were far too pessimistic and "another utter doom and gloom scenario" by an organisation "that simply hasn't got anything right".

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