A report by the National Institute of Economic & Social Research says that workers will see their disposable incomes fall this year, as a result of rising inflation that will reach 3.4%.

The NIESR says that wage rises will be 2.7% on average, leaving workers to deal with the largest real-terms cut in their take-home pay since early 2014.

The prediction of 3.4% inflation is above the level forecast by the Office for Budget Responsibility (the Treasury’s independent forecaster), which said earlier this year that inflation will reach 2.4% by the end of the year.

The NIESR said that, despite the squeeze on disposable incomes, the GDP growth rate will rise from 1.7% this year to 1.9% in 2018.


Simon Kirby, the NIESR’s UK economic forecaster, said that with inflation already at 2.3%, the OBR will have to revise its forecast upwards.

He added: “GDP growth over the next couple of years will be subdued, growing at less than the economy’s long-run potential rate of 2% per annum, but households will feel the pinch from rising consumer-prices inflation.

The rate of inflation is expected to rise from 2.3% per annum in March to almost 3.5% by the end of 2017. By 2018, we expect consumer spending growth to have effectively stalled.

“The labour market remains robust”, with the employment rate hitting a record high of 74.6% in the three months to February. However, he said surveys continue to show that “millions of workers want an increase in the number of hours they work, so firms could increase their output without taking on new staff or increasing hourly rates”.