Budget 2020: Households facing £600 per year hit to earnings due to weaker economy

The Resolution Foundation think tank noted that the Office for Budget Responsibility's latest pay growth projections show a weakening in every year of the forecast

Weaker UK economic growth in the coming years will hit average household earnings by £600 a year according to an analysis of the official forecasts published alongside Wednesday’s Budget.

The Resolution Foundation think tank noted that the latest pay growth projections from the Office for Budget Responsibility (OBR) show a weakening in every year of the forecast, stemming from its downgrade for the UK productivity growth outlook.

And this is even before accounting for the potential for the coronavirus crisis to send the UK into recession, which was not factored into the OBR's numbers.

“The economic hit from weaker growth even on these forecasts is around £300 per household this year, rising to almost £600 per year by the middle of the Parliament,” wrote the think tank’s analysts.

Any further downgrades in the growth outlook later this year will likely lead to further damage to wages and incomes.

However, one post-crisis milestone on UK wages was reached late last year, with average weekly earnings finally returning to their pre-crisis peak in December.

Though the OBR revised up its pay growth forecasts for 2021 and 2022 on Wednesday on the back of a stronger than expected labour market recently, it revised its estimates for 2023 and 2024 down reflecting weaker productivity growth estimates.

The latter delivers the overall hit to wages relative to previous estimates.

“The OBR managed to deliver an incredibly grim, and yet still unbelievably optimistic, pre-pandemic markdown to the UK’s economic outlook – dealing £600 a year hit to every household in Britain,” said Torsten Bell, the Resolution Foundation’s director.

“In reality once we take the economic impact of coronavirus into account this is the weakest official growth outlook on record. And having finally returning to peak pay this year, real wage growth is set to weaken every year of the forecast period.”

This has been the weakest decade for average wage growth in the UK since the Napoleonic wars of the early 19th century, according to previous analysis by Resolution