UK wages over the past year have grown at the fastest rate in 16 years despite any productivity improvement, according to new analysis.
Real wages have risen "without putting further pressure on inflation", research from the Resolution Foundation has found, as falling pension costs and import prices have "temporarily severed the link between productivity and wage growth" in Britain.
However, it is a trend that is not set to last, the think tank said in a report today.
Real average weekly regular earnings have grown by 2.1% in the 12 months to February 2024, helping recover some of the lost ground from pay rises being well below inflation for several years.
Productivity, as measured by output per worker, fell by 0.6% in the 2023.
The report said there are two key reasons why this unproductive wage growth is affordable for firms and is not fuelling inflation: employer social contributions such as payroll taxes and pension contributions that normally add to a firm’s wage bill actually fell during the period (due to rising interest rates helping reduce pension deficits and allow firms to redirect those contributions back into wage packets) and some rewinding of the rise in import prices during the cost of living crisis.
"After 16 years of wage stagnation, real pay packets in Britain are growing again at a healthy two per cent," said Greg Thwaites, research director at the Resolution Foundation.
He added: "But while this welcome real wage recovery has been affordable so far, it won’t be in the future. Unless productivity picks up, wage growth will peter out, or pay rises will simply be passed on through higher prices and prolong our inflation problems."