(Bloomberg) — Britons are set to start getting richer again this year, as falling inflation and rising wages push up real incomes, the Bank of England predicted.
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In its February forecasts, the Monetary Policy Committee had braced for real household income — which takes into account the rising cost of living — to stall until 2024. It’s latest outlook shows a 1% increase this year, and again in 2024 and 2025.
While 2024’s figure is slightly down from the 1.5% increase previously forecast, the 2025 reading is up from 0.75%.
The figures will come as a relief to households that are facing a huge increase in mortgage costs as their fixed-term deals end. But BOE officials are also sensitive to signs that real wages are rising too fast and potentially adding to inflationary pressures.
Read more: BOE Says 1.3 Million UK Borrowers Brace for Higher Mortgages (1)
The rise in incomes is partly explained by the fall in energy prices. Another factor is that unemployment has remained lower than expected because a recession that forecasters were expecting just three months ago has failed to emerge.
“Households’ energy bills in Q2 will be lower than projected in the February Report, boosting real incomes,” the BOE said in its Monetary Policy Report released Thursday. “Higher household incomes are expected to support stronger consumption growth over 2023 than had been projected in February. Nonetheless, spending growth remains weak in an absolute sense.”
—With assistance from Andrew Atkinson.
