IFS warnings on wages show importance of Single Market membership

A “dreadful” fall in wage growth forecast over the coming years has been partly caused by Brexit, Institute for Fiscal Studies analysis shows.

The IFS are forecasting zero wage growth between now and 2020/21, meaning workers could be earning less in real terms in 2021 than they were in 2008. This forecast has fallen by 3.7 per cent since the last forecast back in March, which expected modest wage growth.

Detailed IFS analysis shows this is in part caused by the vote to leave the European Union. The IFS attribute the fall in wage growth “mainly” to lower productivity, which they say has been caused by “investment falls in light of post-Brexit uncertainty.”

IFS director Paul Johnson has said: “One cannot stress enough how dreadful that is - more than a decade without real earnings growth. We have certainly not seen a period remotely like it in the last 70 years.”

Commenting, Chris Leslie MP, supporter of the Open Britain campaign, said:

“This is clear proof that the Brexit vote has made working families worse off. The irresponsibility of Leave campaigners was breathtaking – they should now be admitting that economic warnings made during the campaign were not Project Fear; they were Project Fact.

“Their promises that Brexit would make Britain better off now appear naive and complacent.

“It is vital that the Government does everything it can to minimise the damage to hard working people. That means trading within the Single Market – our biggest trading partner, on which millions of British jobs rely.”



The OBR’s forecasts are reported here: http://www.bbc.co.uk/news/business-38090977

In their analysis of the Autumn Statement, the Institute for Fiscal studies say:

“OBR forecast of effect of Brexit vote actually larger than total forecast revision (around £50bn) ‒ Real GDP per household £1,250 lower in 2020-21 as a result. 2 main ways the effects of this economic slowdown is expected to pass through to real household incomes 1. Higher prices facing UK consumers 2. Lower cash earnings for UK workers” (Source: Slide 11, https://www.ifs.org.uk/uploads/publications/budgets/as2016/as2016_ah.pdf). 

The IFS go on to say:

“The OBR now expects average earnings to be 2.4% lower in cash terms in 2021 Q1 than was expected back in March ‒ Mainly explained by lower productivity, as investment falls in light of post-Brexit uncertainty.” (Source: Slide 24: https://www.ifs.org.uk/uploads/publications/budgets/as2016/as2016_ah.pdf).