A pickup in wages of British workers could be undermined by a failure of productivity to recover, according to the European Commission.
Pay growth may accelerate to 2.4 percent this year from 1.5 percent in 2014, the Brussels-based executive arm of the European Union said Tuesday. Inflation will average 0.4 percent this year and pick up to 1.6 percent in 2016.
While U.K. consumers finally rediscovered their spending power as inflation slid to zero in recent months, the failure of productivity to grow since 2007 suggests that power isn’t assured. Party leaders are still trying to gain an edge in voter opinion polls with two days to go before the election.
“The tightening in the labor market is expected to lead to a modest rise in employee compensation, which should further underpin growth in private consumption,” the commission said in a report. “However, a risk is that productivity stays at current low levels, which would depress wage growth.”
The commission maintained its gross domestic product growth forecasts at 2.6 percent this year and 2.4 percent in 2016. It sees pay growth picking up to 2.8 percent next year.