Living standards show '˜solid recovery as incomes grow'

The Resolution Foundation said the recovery was built on rapid employment growth and historically low inflation.

Growth rates were evenly shared, benefiting low and middle-income households as well as the better off, said the think tank.

In the past year, average household income grew at the fastest rate since 2001, said the foundation’s director Torsten Bell.

But he said there was “anxiety” about prospects for 2017, adding: “These are good results, but obviously no one expects dancing in the streets as this income recovery has come off the back of an unprecedented income squeeze in the crisis years.

“Indeed non-retired incomes have only just returned to pre-crisis levels. But in some ways more concerning than the past, which we can do very little about, is the future.

“People may not have loved 2016 but we may come to miss the income rises it saw.”

Mr Bell said recent employment growth cannot be sustained indefinitely, and has already slowed to a “trickle” as the labour market has been in a “holding pattern” since May.

“Ultra low inflation in recent years has boosted real pay rises, with real pay growth nearing 3% in late 2015, hovering around 2% for much of 2016 and now standing at 1.7% annual growth over the three months to October.

“But new Resolution Foundation analysis of official forecasts for pay and inflation shows that we are on course for fast, significant and repeated falls in real earnings growth early in the new year.

“This earnings freefall means we expect wage growth to fall to around 1% in the three months to January, the slowest real wage rises in over two years.”