The Times:
A squeeze on wages will set the tone for whoever wins on June 8
17 May 2017
There are three reasons to be sceptical about the Bank’s forecasts for the growth in earnings in future years, and hence the recovery in real wages. One is that unemployment may not stay as low as 4.5 per cent. Most forecasters, including the EY Item Club, which reported earlier this week, think that slower growth will mean a rise in unemployment, which could press down on the growth in wages. Second, as David Blanchflower, a former member of the Bank’s monetary policy committee (MPC), Rui Costa and Stephen Machin of the London School of Economics’ Centre for Economic Performance (CEP) point out in a paper, The Return of Falling Real Wages, the Bank has form on overpredicting the growth in wages. Two years ago the Bank was predicting 4 per cent earnings growth for 2017. Now it expects half that rate, a 2 per cent increase in earnings which the CEP paper says is the new norm.