This article is more than 1 year old

This article is more than 1 year old

Britain’s weak wage growth and rising prices have delivered a hit to living standards of a severity normally only seen during a deep recession, a leading thinktank has said.

While official data has shown a pick-up in real earnings growth in recent months, the Resolution Foundation said household incomes had declined by 0.5% in the period from 2016-17 to 2018-19.

In the past 40 years, the thinktank said, only the recession of the early 1980s and the slump during and after the financial crisis had brought a weaker performance.

Household income growth had been worse than during the recession of the early 1990s – a period when real household incomes rose by 0.3% even though house prices were in the middle of a six-year decline and the pound crashed out of the European exchange rate mechanism on Black Wednesday in September 1992.

In its 2019 living standards audit, the Resolution Foundation said the slowdown in the years since the 2016 EU referendum was part of a wider stagnation in living standards since the financial crisis.

This, it added, had been caused by “a severe curtailing” of the traditional driver of income growth – rising productivity.

UK productivity growth averaged 2% in the decades leading up to the 2008 banking crisis, but has barely risen at all in the 10 years since. The thinktank said rising output per hour – one measure of productivity – had accounted for two-thirds of overall economic growth before the great financial crash, but just 22% of growth since then.

In the light of poor productivity, households had boosted incomes by working more. Employment is 3 percentage points higher than in 2007, while the average number of hours worked has remained unchanged at 32 hours a week since 2007, having fallen by an average of one hour every four years over the past century.

Adam Corlett, a senior economic analyst at the Resolution Foundation, said: “Over the past two years, UK households have experienced a near stagnation in living standards, even worse than the income hit experienced during the early 1990s recession.

“Restoring decent levels of household growth is therefore one of the most critical challenges facing the incoming prime minister.

“The living standards history of the past 25 years tells us that there are two broad ways that families have traditionally got richer over time – higher pay off the back of rising productivity, and supporting more women into work.

“After an unprecedented income squeeze over the past decade, and a living standards outlook that includes child poverty rising to record levels, an economic approach that supports higher incomes for all households must be the top domestic priority for the incoming PM.”

Ministers in Theresa May’s outgoing government were quick to seize on the latest official labour market statistics showing regular pay growing at its fastest rate for 11 years in cash terms.

The Office for National Statistics said annual average earnings growth stood at 3.6% in the three months to May – comfortably exceeding the increase in the cost of living of 1.9%.

The ONS said that between March and May – during which the UK was gripped by Brexit uncertainty – there had been a small rise in employment and the jobless rate had remained at 3.8%, its lowest level since the mid-1970s.

Sign up to the daily Business Today email or follow Guardian Business on Twitter at @BusinessDesk

Recent surveys of the economy have painted a bleak picture of mothballed investment and empty high streets, but unemployment as measured by the internationally agreed yardstick fell by 51,000 over the quarter to stand at 1,292,000.

The official data picked up some signs that the UK’s jobs boom is fading, with employment rising by just 28,000 in the latest quarter. There was a fall of 58,000 in full-time employment, offset by an 86,000 increase in part-time work. A rising working-age population meant the employment rate fell slightly.

The employment minister, Alok Sharma, said: “Wages outpacing inflation for 16 months in a row, more people in work than ever before and joint-record female employment, means better prospects for many thousands of UK families and shows the continued resilience of the UK labour market.”