UK workers to face biggest #WageFall of any advanced economy in 2018, finds OECD

The OECD shows UK real wages falling by 1.1% in 2018, with nominal earnings growth of 1.5% outstripped by inflation of 2.7%.

This is a big change of view on nominal earnings, which were previously expected to rise by 2.5% (in their March interim forecast). This revision must reflect earnings outcomes coming in significantly weaker than expected. The latest inflation forecast is actually down a little on the March forecast of 2.9%.

The decline means that the UK real wage performance in 2018 will be equal worst in the OECD, with Finland (UK is marginally worse on an unrounded basis). Mexico and Italy are the only other counties expected to experience declines.

TUC research has shown that UK workers’ real wages are still lower than they were before the 2008 financial crisis. The average worker’s real wages are down over £1,200 a year on 2008.

Commenting on the news from the OECD, the UK's Trade Union Congress (TUC) General Secretary Frances O’Grady said: “Boosting wages has to be a top priority for whoever gets the keys to Downing Street.

“British workers still haven’t recovered from the last financial crisis. The last thing they can afford is another hit on their finances.

“Britain badly needs a pay rise – working people must make their voices heard on Thursday.”

Brexit

The OECD's twice yearly economic forecasts set out their view of how the economy will develop, and how governments should respond. Their message for the UK government is clear, say the TUC: they need to invest.

The headline on their economic commentary remains the weakening of GDP growth to 1.6% in 2017 and then to 1% in 2018 , “owing to uncertainty about the outcome of the Brexit negotiations. These figures are unchanged from their March interim outlook, but a way below the latest OBR forecasts for 2.0% in 2017 and 1.6% in 2018. They also forecast a rise of unemployment to 5.3% in 2018; the OBR forecast 5.1%.

As widely understood, the OECD point out how household consumption has been the main driver of growth to date. But this has been sustained by “reducing gross savings and borrowing”. The OECD expect credit to tighten reducing consumption-led growth.

The OECD also points out that despite the depreciation of the exchange rate, exports have been volatile and export market shares have not yet risen. This appears to contradict the assertions of Brexiteers that devaluation will boost exports and make the UK economy more competitive.

The major risk for the economy is the uncertainty surrounding the exit process from the European Union. Higher uncertainty could hamper domestic and foreign investment more than projected, but swift progress in negotiations and an outcome that retains strong trade linkages with the European Union would lead to better outcomes than projected.Export growth could be weaker if export prices rise more than projected, reducing competitiveness gains from the past exchange rate depreciation."

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