Real pay finally turns the corner

Last week’s labour market figures brought the long-awaited news that pay growth has finally begun to exceed inflation. Granted, real earnings are still 10% below their pre-recession peak and signs that productivity has continued to stagnate in the first quarter of 2014 have cast a shadow over their potential to recover much of that lost ground soon.

Nonetheless, there remains a long list of reasons to expect the recent weakness of output per worker to be temporary. So while it might still take until the end of this decade for real pay to return to its 2008 peak, we continue to expect its recovery to strengthen over the coming year.