The cost-of-living crisis ‘appears to be coming to an end’ as inflation looks set to fall behind pay growth, an economist has claimed.
Ashley Webb of Capital Economics predicted last month’s inflation figure, which stood at 7.9 per cent in June, would ‘fall below’ the pace of wage growth when official figures are published next week.
Wages rose around 6.9 per cent year-on-year between March and May, not too far behind inflation.
Cost crunch: Ashley Webb of Capital Economics predicts inflation, which stood at 7.9% in June, would ‘fall below’ the pace of wage growth when new official figures are published
But this is expected to reverse, with Capital Economics predicting inflation will have fallen to 6.5 per cent in July while average earnings for the three months to June will accelerate to 7.4 per cent.
Webb added that inflation was expected to remain below pay expansion for the rest of the year, meaning households would finally begin to recover some spending power after almost a year of crippling price rises.
He said: ‘Overall, based on the real growth rate of earnings, the cost-of-living crisis may end as soon as July this year.
But the levels of real household disposable income and real wages may not recover until 2025.’
The assessment came as the Bank of England’s chief economist Huw Pill warned in a question and answer session hosted by Citizens Advice that food prices would still remain high even if inflation begins to fall.
Traders are also continuing to price in more interest rate hikes from the Bank this year after it increased rates by 0.25 percentage points last week to 5.25 per cent, their highest level in 15 years.
Around two-thirds are betting on another 0.25 per cent rise next month to 5.5 per cent, while they are more evenly divided on the chance of another rise in November to 5.75 per cent.
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