OBR chairman warns over stagnant wage growth

Chairman of the Office of Budget Responsibility Robert Chote
Image caption Chairman of the Office of Budget Responsibility Robert Chote said economic recovery was yet to translate to wages

Wage growth in the UK is not expected to return to the historic norm of around 2% for a "couple of years", according to the chairman of the Office for Budget Responsibility (OBR).

Robert Chote was giving evidence at a Treasury Select Committee hearing examining last week's Autumn Statement.

He said the economic recovery had not yet lifted living standards.

Mr Chote also said rising house prices and falling wages were eroding people's savings.

"In terms of real earnings, we don't get the sort of 2% a year real growth in wages and salaries that people would have been used to on past historical experience for a couple of years still.

"So we have consumption rising faster than that, leading to a relatively modest fall in the savings ratio," Mr Chote said.

Weak business investment

When asked about savings, he said the OBR did not make a judgement on what level of saving was best for the economy.

The OBR's chairman said he only expected earnings growth when productivity growth picks up.

In last week's Autumn Statement the OBR upgraded its forecast of GDP growth for 2013 to 1.4% from 0.6%.

It also revised up its 2014 forecast to 2.4% from 1.8%.

Mr Chote said consumer spending and the improving housing market, rather than business investment, was behind the accelerating economy.

"In past recoveries you would expect to see robust investment rising as a share of GDP at this stage," he said.

"One reason that hasn't happened is that firms' expectations of profitability hasn't been high."

Mr Chote added weak profitability could be linked to weak productivity.

"In the absence of productivity growth, you don't get the growth in real incomes and living standards that most people would think of in this context," he said.

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