National Minimum Wage

The UK Economy in 2011
Chapter 1: The Economic Context to the October 2011 Upratings
1.7 As noted above, we recommended that the adult rate of the minimum wage increase by
2.5 per cent in October 2011. Table 1.2 shows that, when we came to our recommendations
in January 2011, this was expected to be close to average earnings growth but below
inflation. The median of independent forecasts for average earnings growth was 2.6 per cent,
while the Office for Budget Responsibility (OBR) forecast was a little lower at 2.2 per cent.
Consumer Prices Index (CPI) inflation was forecast to be just under 3 per cent with Retail
Prices Index (RPI) inflation higher (OBR was forecasting 3.4 per cent with the consensus at
4.0 per cent).
Table 1.2: Economic Forecasts Available in January 2011, UK, 2011-2012
Per cent Forecasts for 2011 Forecasts for 2012
Median of
independent
forecasts
(January
2011)
OBR
forecasts
(November
2010)
Median of
independent
forecasts
(November
2010)
OBR
forecasts
(November
2010)
GDP growth (whole year) 2.0 2.1 2.1 2.6
Average earnings growth (whole year) 2.6 2.2 - 2.4
Inflation RPI (Q4) 4.0 3.4 2.8 3.1
Inflation CPI (Q4) 2.9 2.8 1.8 1.9
Employment growth (whole year) 0.4 0.3 - 0.7
Claimant count (millions, Q4) 1.56 1.49 1.53 1.41
Source: HM Treasury Panel of Independent Forecasts (November 2010 and January 2011) and OBR forecasts (November 2010)
based on ONS data, GDP growth (ABMI), total employment measured by workforce jobs (DYDC) and claimant unemployment (BCJD),
quarterly, AWE total pay (KAB9), monthly, seasonally adjusted; RPI (CZBH) and CPI (D7G7), quarterly, not seasonally adjusted, UK (GB
for AWE); 2011-2012.
1.8 The median of independent forecasts suggested that gross domestic product (GDP) would
have grown by 1.7 per cent in 2010 and would grow more strongly in 2011 and 2012. We
now consider what has actually happened to growth, inflation, average earnings, employment
and unemployment.
Gross Domestic Product Growth
1.9 The data available at the time of writing our last report suggested that the UK had exited the
longest and deepest recession since the 1930s in the fourth quarter of 2009 and had then
experienced four successive quarters of growth. The level of GDP in the third quarter of 2010
was 2.7 per cent higher than it had been a year earlier, with growth particularly strong in the
second and third quarters of 2010. We noted that growth for 2010 was likely to turn out at
1.7 per cent, higher than had generally been expected in January 2010. The UK therefore
looked set to continue its recovery in 2011 and beyond. However, we did consider that there
might be significant downside risks and that the economy might not grow as fast as forecast.
We were right to be concerned. Since that time, the Office for National Statistics (ONS)
has significantly revised the GDP data, mainly affecting growth since 2007, as shown in
Figure 1.1.
3