Employment figures mark 'beginning of the end' of the cost of living crisis - EY ITEM Club

16 April 2014

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  • This should mark the beginning of the end of the cost of living crisis
  • We are making good progress towards achieving the highest employment rate in the G7
  • There is still plenty of slack so rate hikes remain some way off

Andrew Goodwin, senior economic advisor to the EY ITEM Club, comments on today’s labour market figures:

“With earnings growth finally pulling into line with inflation, today marks the beginning of the end of the cost of living crisis. As the recovery firms up, the labour market tightens and skills shortages start to appear we should see wage growth gradually accelerate and establish a clear gap over inflation. That said, the decline in real wages has been so severe that it will probably take another four years until we recover from the losses of the past six years.

“Today’s figures suggest that the labour market is in good shape. The economy is creating jobs and we continue to make progress towards the Chancellor’s aim of achieving the highest employment rate in the G7 - in the past year alone the employment rate has risen by 1.2 percentage points.

“At the same time unemployment is steadily falling back and, having breached the 7% threshold, we are now officially in phase two of forward guidance. Nevertheless, with the labour force continuing to expand strongly and levels of under-employment remaining high, even if job growth remains robust it will still be some time until we have used up enough slack to force the MPC’s hand. We continue to forecast that the first interest rate hike will come in the second half of 2015.

“The combination of higher employment levels and a steady pickup in real wages should help to put the consumer recovery on a stronger footing, lessening the reliance of households saving less to finance their spending.”