National Minimum Wage

National Minimum Wage
Revised Forecasts for 2011 and 2012
1.41 At the time of writing our 2011 Report, as we noted above and show in Table 1.6, the
consensus was that GDP would grow by about 2.0 per cent in 2011 and 2.1 per cent in 2012.
The OBR forecast was for slightly stronger growth. The weakness in the economy that we
have discussed has led to a significant downwards revision of forecast growth in both 2011
and 2012. We, along with OBR and the median of independent forecasts, now expect the
economy to have grown by just 0.9 per cent in 2011. Thus, the economic outturn has been
much poorer than had been expected in January 2011. As a result the employment and
unemployment performance has also been weaker.
18
Table 1.6: Revised Economic Forecasts, UK, 2011-2012
Per cent Forecasts used in 2011 Report
(January 2011)
Median of
independent
forecasts
(November 2010
and January
2011)
OBR forecasts
(November
2010)
Latest forecasts available
(January 2012)
Median of
independent
forecasts
(January 2012)
OBR forecasts
(November
2011)
2011 2012 2011 2012 2011 2012 2011 2012
GDP growth (whole year) 2.0 2.1 2.1 2.6 0.9 0.4 0.9 0.7
Average earnings growth
(whole year)
2.6 - 2.2 2.4 2.5 2.4 0.9 2.0
Inflation RPI (Q4) 4.0 2.8 3.4 3.1 5.4 2.8 5.2 2.8
Inflation CPI (Q4) 2.9 1.8 2.8 1.9 4.7 2.1 4.6 2.4
Employment growth
(whole year)
Claimant count (millions,
Q4)
0.4 - 0.3 0.7 0.4 -0.5 0.7 -0.2
1.56 1.53 1.49 1.41 1.63 1.79 1.62 1.79
Source: HM Treasury Panel of Independent Forecasts (November 2010, January 2011 and January 2012) and OBR forecasts (November
2010 and November 2011) 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.
1.42 On the other hand, inflation has been much greater than had been foreseen, driven by the
increases in commodity prices, utility bills, petrol and VAT. The consensus was that CPI
inflation would fall by the end of 2011 towards 3 per cent (with RPI at 4 per cent). OBR had
forecast inflation falling back by slightly more. Table 1.6 shows that inflation was expected to
be below target by the end of 2012. This is no longer expected to be the case. Inflation is
now expected to be over 5 per cent for RPI in the final quarter of 2011 with CPI at around
4.6 per cent. This is considerably higher than was expected a year ago.
1.43 There has been little change in the consensus forecast for average earnings growth, with
independent forecasters expecting wage growth of around 2.5 per cent in the whole of 2011.
OBR, however, has been expecting much weaker wage growth of just 0.9 per cent. Both
forecasts of average earnings imply considerable reductions in average real wages. The
increase in the adult rate of the minimum wage in October 2011 was 2.5 per cent. This was
in line with the consensus of average wage growth forecasts.