Is the worst over for pay?

Last week’s labour market data was something of a curate’s egg. Although a further fall in theunemployment rate indicated that the jobs recovery has continued at a rapid pace, the earningsfigures confirmed that workers’ real pay has continued to fall. This casts doubt over thesustainability of the economic recovery, particularly one which is largely consumer driven.

That all said, there are a number of reasons why we expect wage growth to stage a gradualrecovery over the second half of this year. For one, survey measures of pay remain upbeat. Second,wage growth should be boosted by the planned above-inflation rise in the national minimum wagein October. And third, productivity should recover over the coming quarters, which is key tosustainable rises in wages.