UK wages unlikely to recover in medium term, forecasts S&P

After years of sluggish growth UK real wage growth turned negative last month and, with wages being hampered by large numbers of zero-hour contracts, look unlikely to recover for years to come, said rating agency S&P on Tuesday.

The UK economy expanded by only 0.2% in the first quarter, according to fresh data from the Office for National Statistics, as rising inflation and static wages puts a sleeper hold on households.

Real wages, after only two years of modest recovery in the 1%-2% range, had only just regained the same levels from 2004, S&P noted, and still were failing to catch up even with very weak productivity.

"The resulting weakening of household purchasing power will likely translate into weaker consumer spending, which is a key factor behind the slow GDP growth we anticipate for the rest of this year," said Boris Glass, senior economist at S&P's global ratings business.

This is not being helped a broader trend of employee-unfriendly conditions that saw 900,000 jobs under zero-hour contracts in the fourth quarter of last year, according to the ONS, making up almost one-quarter of all employment created since 2010.

Real wages are currently still "well below the norm", even at such low productivity levels, said Glass, after 13 years of lost earnings growth in absolute levels.

"What's more, with productivity growth remaining so sluggish, there is not much for real wages to catch up to. Real pay growth will likely remain muted until productivity numbers rebound," he added.

"At least some of the productivity loss could be reversed by boosting investment spending, including on infrastructure. Unfortunately, this is unlikely to occur to the extent necessary in the near to medium term."