Annual FT economists’ survey: Living standards forecast to rise

Economists are confident that 2015 will be the year households finally see real rises in their standard of living. But they warn that many will still feel poorer than before the crisis.

All but six of the respondents to the Financial Times annual economists’ survey* felt that a combination of falling oil prices and wages finally starting to increase would boost households, after years of falling real incomes.

Stephen King, group chief economist at HSBC, said the lower oil price “will feel a little bit like manna from heaven: even if wage growth remains relatively [weak], real wages should pick up thanks to a drop in headline inflation.”

James Knightley, senior economist at ING, said he expected “positive surprises on pay”, with real household incomes set to “grow rapidly” benefiting from another rise in the personal tax allowance, falling petrol prices and supermarket price wars.

“I suspect that most households are already seeing an improvement, but it may take several months for them to . . . believe it is a sustainable improvement,” he said. But even those confident of a rise in living standards stressed that UK households still face problems. Mr King said evidence suggested that “the labour market is mostly delivering low-productivity, low-pay jobs so unless oil prices keep falling, the old constraints may make a reappearance.”

Matthew Whittaker, chief economist at the Resolution Foundation think-tank, said he believed household incomes may already have started rising this year, with rapid employment growth among lower-skilled workers pulling down average wages and masking improvements for those already in work.

“It’s a long road back, though, and we estimate that incomes won’t return to their pre-crisis levels until early-2016,” he said.

Danny Blanchflower, former MPC member and professor of economics at Dartmouth College, said there would be “little or no rise” in standards of living, that claims of a rise in wages were “without foundation” and that falls in wages at the smallest firms meant a “big downward revision” to the official statistics on average weekly earnings was likely.

Bronwyn Curtis, chief economic adviser at the Official Monetary and Financial Institutions Forum think-tank, said while households will “feel some relief because real wages will be rising for the first time since 2009. The trouble is, the standard of living won’t be back to pre-crisis levels and the only way for interest rates, and therefore mortgage rates, to go is up.”

Peter Dixon, economist at Commerzbank, said while he expected to see some real wage growth it would be a “slow haul”.

“I am not convinced that most people will feel significantly better off this time next year. Job security is lacking; the quality of jobs on offer remains poor — lots of low-paid/zero hours jobs instead of better paid permanent positions; and a lot of people lower down the income scale are feeling the effects of government cuts,” he said.

——————————————————-

*Full text of answers to the question

To what extent will UK households see, and feel, an improvement in their household finances and standard of living next year?

Adam Posen, Director Peterson Institute

I believe that UK households will do better on real income in 2015 than in most recent years. There will be modest overdue wage growth and lower inflation on average.

Sir Alan Budd, former MPC member

The increase in real household incomes will be less than 2 per cent which is hardly life-changing but better than nothing. There will be some sense of improvement in household finances and standard of living.

Andrew Hilton, Centre for the Study of Financial Innovation

Clearly, real wages (or real total remuneration) are rising. I am not thrilled about that, because I fear we may start to price ourselves out of the market again — but that won’t be 2015’s problem. It will hit in 2017/18. Lower gasoline prices will help the Bonnington-Jagworths of this world, and more broadly, Daily Mail readers. If they kick in pre-election, it will also help the Tories. Of course, interest rates may (well) start to rise in the third quarter — and (contrary to the BoE) I think that will have a serious impact on those with interest-only mortgages (who are, I think, predominantly in the SE). But the first half, at least, looks pretty good — and lags behind should push most of any pain into 2016.

Azad Zangana, Schroders

2015 will certainly feel better than recent years. Households should see falls in energy bills while food price inflation should remain subdued. Meanwhile, wage growth is likely to pick up as the unemployment rate continues to fall, and some shortages start to appear. In real terms, households should see a general improvement in their purchasing power.

Bart van Ark, the Conference Board

Internal demand is likely to continue to remain strong, especially as the labour market is beginning to get tighter and wages are beginning to rise. Low inflation rate will help households’ purchasing power, on average. However, wealth inequality in Britain has continued to increase since the crisis, so that the recovery is likely to be challenging for households at the lower end of the distribution.

Bridget Rosewell, Volterra

Most will fail to notice

Bronwyn Curtis, Official Monetary and Financial Institutions Forum

Households will see it in the statistics and they will feel some relief because real wages will be rising for the first time since 2009. The trouble is, the standard of living won’t be back to pre-crisis levels and the only way for interest rates, and therefore mortgage rates, to go is up.

Charles Davis, Centre for Economics and Business Research

After the longest, deepest declines in real income since the mid-19th century, things are finally starting to improve. We are seeing skill shortages and pinch points in the labour market which are starting to put a little upward pressure on pay growth. It’s by no means a rapid acceleration and we don’t think it will be since underemployment remains despite the steep drop in the headline unemployment rate. However, just as pay growth picks up a little, the major downward pressure on prices from the plummeting cost of crude will provide a real boost.

Inflation looks likely to drop beneath 1 per cent in the first half of 2015 as ferocious retail competition amplifies the downward pressure on prices from lower food and oil prices. There are modest taxpayer giveaways too but then there could be an emergency budget post election and tax rises to come. Overall, it looks like real incomes will grow at a healthier pace in 2015 — but we are still not talking about anything like pre-crisis increases, and real incomes will remain around 8 per cent beneath previous peak by the end of next year.

Charles Goodhart, former MPC member

Quite a lot. The reduction in inflation has further to go. With any luck we might see it down to zero, or even better a small negative. With wage rates continuing to rise gently, living standards should recover quite sharply.

Costas Milas, Liverpool University

If (a) interest rates remain low, (b) inflation stays close to 1 per cent, and (c) wage growth “hits” 3 per cent, then households will see a real improvement in their living standards. Not sure, however, whether (annual) wage growth will reach 3 per cent.

Danny Blanchflower, Dartmouth College

Little or no rise in standards of living. Real wage still continue to fall and are down 10 per cent since May 2010. Claims of a pick-up are without foundation and we are going to see a big downward revision to the AWE because of the falls in wages in the smallest firms. The decline in inflation will help. So real standards of living will probably remain flat through 2015.

David Cobham, Heriot-Watt University

Only to a limited extent: the recovery will fail to deliver substantial improvements in living standards particularly for the working poor, and most people will continue to have real incomes well below their previous peak levels. The problem is that the combination of labour market flexibility and repeated welfare and benefits cuts has produced a situation in which many people can be employed only on terms and conditions which are at variance with what society believes to be the acceptable minimum for living standards (even though the present government has done its best to depress that minimum). Radical action, which would include significant relative price effects (a rise in prices for goods and services which are intensive in unskilled labour, reversing the long fall in those prices in recent decades) is required to change this situation, and would take time as well as political will.

David Kern, British Chamber of Commerce

UK real earnings are already in positive territory and the positive trend should strengthen next year. For calendar 2015 we are forecasting CPI inflation to average 1 per cent and total nominal earnings growth to average 2 per cent. But, given the prolonged squeeze on real incomes in recent years, people will still not truly feel in 2015 that they enjoy a real improvement in living standards.

DeAnne Julius, former MPC member

With inflation low, oil prices falling and employment growth solid there should be a gradual improvement in household finances over the course of 2015.

Diane Coyle, Enlightenment Economics

It helps that some prices are falling, or not rising much. Just as important, though, is whether what happens to the share of wages and salaries in total output. For some years the trend has been a rising profit share and falling wage share. The underlying issue is one of distribution, and whether the economy is serving the great majority of people.

Dieter Helm, Oxford university

Fall in inflation with nominal wage growth will translate into real modest income growth

Anon

Clearly at some point the labour market will tighten enough that wages will rise. That is likely to happen first in London, for graduate level jobs, and for shortage jobs — such as bricklayers, where the recession has destroyed skills and supply.

But for so many this is the lap of the Chancellor. Presumably we will get another emergency budget after the election. Last time VAT went up — as the IFS keep pointing out, something like that is likely again. So that could be a real drag. Equally, working age benefits are being held down quite severely.

For pensioners too, there are mixed pointers. The triple lock will help those at the bottom, with the 2.5 per cent nominal likely to be element of the lock that matters. But interest rates are very low, and a lot of savers who took out a five year ISA bond five years ago at (say) 3.75 per cent are now finding that the best rate is 1.5 per cent, hitting their income.

Renewed turmoil in Europe, with Greece having another session in the news, should keep the £ strong, keeping inflation low.

George Magnus, Adviser to UBS

With inflation converging on zero, and wages rising by 1.5-2 per cent, real take home pay ‘should’ make people feel better off, though they won’t make up recent year shortfalls. Household net worth has been rising again after a stall in 2013, but the cause is principally asset prices whose benefits are not widely shared. The biggest problem for the household sector is the significant decline in the savings rate, so that its net financial position is now zero. A new leverage cycle yet is neither likely nor desirable.

Howard Archer, IHS Global Insight

UK households should see an appreciable improvement in their household finances and living standards in 2015, although there is the risk that some people may not fully feel it due to the extended squeeze on purchasing power that has taken place and high debt levels. Consumer price inflation is likely to average around 1 per cent in 2015, while earnings growth should build on the gradual uptrend that now seems to be developing. We forecast average earnings to rise around 2.5 per cent in 2015. Employment should also rise further. Meanwhile, interest rates are likely to rise only marginally, and not until late in the year.

Sir Howard Davies, former MPC member

There has been a very recent change in trend, which I would expect to see continue. the labour market has tightened and firms are conceding wage increases, albeit still modes. And the low oil prices is moderation inflation, so wages will rise a little faster than prices.

Ian Plenderleith, former MPC member

Will see, and begin to feel, real improvement, as per 1 above.

Ian Stewart, Deloitte

The UK has had a job-rich, earnings-poor recovery. In 2015 we expect to see the first sustained growth in real earnings for eight years. Job prospects will improve too and household wealth is likely to rise. We expect improving prospects for household to be reflected in a modest acceleration in the pace of growth of consumer spending in 2015.

James Knightley, ING

Official data showed nominal wage growth was starting to rise even before the 3 per cent hike in the national minimum wage was implemented. The Low Pay Commission suggests that a million workers will benefit from this change and with national pay agreements starting to move towards 3 per cent based on IDS data and some coming in well ahead of that, such as Jaguar- Land Rover.

I think we will see positive surprises on pay. With the personal tax free allowance rising by another £600 next year and with the price of petrol potentially dropping to £1/litre when we are also in the midst of a very intense supermarket price-war I expect real household disposable incomes to grow rapidly in 2015. I suspect that most households are already seeing an improvement, but it may take several months for them to “feel” it, or to believe that it is a sustainable improvement. The prospect of interest rate hikes could be an issue, but it didn’t unduly impact consumer confidence when there were numerous press stories in summer/autumn about the potential for rate rises. Another potential issue is that the housing market loses more momentum and we start to see prices move lower.

James Meadway, New Economics Foundation

By any normal standards, they should have seen an improvement already. As it is, even at exceptionally low rates of inflation average household incomes are only just now beginning to pick up. Should oil prices rebound in the new year, that recent gain will be wiped out for many.

Inequality is going to move centre stage as an economic issue over the next year or so, if growth continues: after some years of reasonably egalitarian compression of incomes, early evidence points to a return to rising levels of income inequality. Inequality of wealth, particularly around access to housing, will become similarly pressing. To the extent that rising inequality continues to eat up the proceeds of growth, the improvement in living standards for most households could be limited, at best.

Sir John Gieve, former MPC member

Many households have already seen an improvement in living standards but most should in 2015 if growth continues. The fall in oil prices should bring inflation below wage growth.

John Hawksworth, PwC

Jobs growth should remain reasonably strong and real wage growth should edge further into positive territory in 2015 as consumer price inflation remains low. But consumer spending growth may still be reliant on a further fall in the household savings ratio, which does not look sustainable in the longer term.

John Llewellyn, Consultant

Real incomes could grown significant next year, perhaps by 1.5 per cent to 2 per cent, largely the result of falling oil and non-oil commodity prices

John Muellbauer, Oxford University

This should be the best year since 2007 for a significant improvement in living standards on the back of gradually higher nominal earnings growth and much lower inflation, induced by lower oil and commodity prices.

John Philpott, Consultant

Yes, at least on average. Employment will continue to rise relatively strongly while average nominal weekly wage growth of above 2 per cent by the start of the year will outpace a CPI inflation rate below 1 per cent. For the year as a whole I expect average weekly real wage growth of around 1.5 per cent

Dame Kate Barker, former MPC member

Some pickup in real wages will help early in year, But either taxes will rise or the benefits from public spending will reduce later in the year.

Keith Wade, Schroders

Inflation is likely to be below wage growth meaning that real wages rise for the first time in seven years. There should also be a feel good factor as the gains become more widely spread.

Kitty Ussher, Tooley Street Research

It will slowly continue to improve. People will feel the tide has turned in a positive direction even if absolute standards of living for many groups remain below pre-crisis levels for some time.

Mark Miller, Economist Intelligence Unit

With tentative signs of a pick-up in wage growth, weak inflation pressures going into 2015 should ensure growth in households’ real pay. However, the possibility of higher debt servicing costs later in the year in response to Bank of England policy tightening has to be recognised.

Matthew Whittaker, chief economist at the Resolution Foundation

Despite the debate on falling living standards continuing, the latest national accounts data suggests that household incomes might actually have been rising over the course of 2014.

Average pay continued to fall in real-terms, but this owed something to compositional factors. Rapid employment growth among the young and lower-skilled workers pulled down average wages, but masked a situation in which those already in work enjoyed modest pay rises.

With inflation well below target, incomes and living standards are likely to continue rising in 2015. It’s a long road back though, and we estimate that incomes won’t return to their pre-crisis levels until early-2016. The big question for the feelgood factor — and for the election — is therefore whether households focus on the direction of travel in recent months or on the longer-term evolution of incomes.

Neil Blake, CBRE

Wages are picking up and last and the drop in headline inflation caused by falling oil (and other commodity) prices will mean growth in real incomes

Neil Williams, Hermes

The advent of next to no UK inflation by spring (I expect just +0.3 per cent year on year CPI in Feb and March with a low 1 per cent ‘handle’ on the RPI) should lift disposable incomes and help the missing recovery piece — real wage growth — to finally slot in.

Nicholas Barr, London School of Economics

More people than this year will feel some improvement, but many people still judge their living standard by where they were in 2007. In addition, the costs of austerity have not been evenly distributed, with significant costs falling on lower earners.

Patrick Minford, Cardiff University

There will be a marked improvement as unemployment reaches ‘full employment’ rates and real wages rise. Nominal wages are now growing more strongly and prices are subdued. Interest rates will begin to rise in 2015, but slowly since the Bank is clearly (and wrongly) reluctant to ‘normalise’ monetary policy.

Peter Dixon, economist at Commerzbank

It will probably be a slow haul. With luck we should start to see some real wage growth which ought to help households’ incomes stretch a bit further even in the face of modest nominal gains. But I am not convinced that most people will feel significantly better off this time next year. Job security is lacking; the “quality” of jobs on offer remains poor (lots of low-paid/zero hours jobs instead of better paid permanent positions); and a lot of people lower down the income scale are feeling the effects of government cuts (for example, ask anyone working for the Citizens Advice Bureau about the impact of cuts to Legal Aid).

Peter Warburton, Economic Perspectives

Households in the aggregate will experience a modest improvement in real after-tax incomes in 2015, concentrated in the first half of the year due to softer CPI readings. However, increased numbers in employment will account for much of the gain, rather than average personal living standards. Wages to accelerate at the bottom of the income distribution, so living standard improvements weighted to the working poor.

Peter Westaway, Vanguard

As wages at last start to pick up in line with improving productivity, and with inflation actually falling below 1 per cent, then real wages will improve more quickly than for many years. But in levels terms, living standards are still well behind pre-crisis levels, especially for people at the bottom of the income distribution who have been hit especially hard.

Phil Thornton, Clarity Economics

The squeeze on living standards will probably remain. Inflation may be falling now and wage growth creeping up but oil prices will rise again and the year-on-year comparison will fall out of the calculation of inflation which will head back to 2 per cent. It is hard to see why wages will accelerate beyond that. Meanwhile cuts in public spending will affect the poorest and ‘squeezed middle’.

Ray Barrell, Brunel University

Productivity should start to grow again, raising potential real wages. Real wages should rise by two per cent or so next year. Income tax receipts are not rising as fast as expected, so disposable incomes will rise. In addition, weak oil prices always raise real wages.

Richard Batley, Lombard Street Research

Wage growth is likely to pick up during 2015 and be above CPI inflation — enough for households to feel the improvement but not enough to worry Mark Carney. Lower oil prices are already reflected in lower petrol prices and the secondary impact of lower energy and other material costs will be felt during the year. The end consumers of commodities in their processed form are households, predominantly in developed economies, and they will be the ultimate beneficiaries of lower commodity prices.

Richard Jeffrey, Cazenove

There are early signs that household incomes are beginning to show stronger growth. In aggregate, there are likely to be three influences in total real household incomes in 2015: a more modest increase in employment, faster earnings growth and (in the first half, at least) lower inflation. So, real income growth per person employed is likely to increase more than total real household income. The total real income gain is likely to be around 2.3 per cent, the best growth since 2009. For most households, this should mean a meaningful and noticeable improvement in disposable income.

Robert Wood, Berenberg Bank

Whatever happens will not, obviously, undo the pain of the past seven years, so in that sense it might not be felt particularly. But cheaper petrol prices should mean real wages gain solidly next year.

Ryan Bourne, Institute of Economic Affairs

I’d expect real living standards to improve in 2015, due both to the low oil price effect and productivity growth facilitating stronger wage settlements. The overall improvement won’t be uniform, however. Those at the lower end of the income scale have faced significantly higher effective inflation rates over the past decade. In particular the relatively high cost of ‘essentials’ — housing, energy, childcare and food — continue to weigh heavily on the least well off through to those on moderate incomes. Many households will ‘feel�� more secure given employment growth, but it in terms of real incomes any improvement next year will just continue to get us back closer to where we were pre-crisis — hardly something to celebrate enthusiastically.

Sir Samuel Brittan

Roughly in line with growth in the absence of shocks.

Tony Dolphin, IPPR

I suspect the combination of a modest increase in wage inflation, reflecting the tighter labour market, and lower price inflation, thanks to the fall in oil prices, could make 2015 the best year for living standards since the financial collapse. How big this boost to household finances turns out to be will depend on the extent to which the lower oil price is reflected in cuts to domestic energy bills.

Tony Yates, Bristol University

I’m assuming that productivity will rebound as the recovery recovers, and so we should get to see more consistent aggregate real wage growth. But the uncertainties mentioned in section 1 might not help their ‘feelings’.

Anon

To quite a significant extent — real earnings growth will pick up and the oil price will make a noticeable difference to the cost of living.

Melanie Baker, Jacob Nell, Morgan Stanley

We expect a rise in real household disposable income growth as the tightening labour market feeds through to rising pay, and inflation falls, thanks to lower food and energy prices and widespread discounting. However, we think that further austerity will be a drag, and the improvement in living standards will be modest.

Nick Bosanquet, Imperial

Already rise in ONS well- being index to 7.5 (on 0-10 scale). London glitterati tend to guess that wellbeing index is around 4! Big gap between media /policy whingers and people across UK.

Falling prices and rising employment will create sense of well being out there — but complaining will go on. British elite and media win Nobel Prize for negativity and complaining. In fact recession has been remarkably well managed with lower social costs than with previous shocks — helped by greater flexibility in labour market.

George Buckley, Deutsche Bank

Households spend around £60bn per year on petrol and utility bills. With energy prices having fallen sharply since the summer this could save them more than £5bn per year, allowing them to either increase their spending or rebuild their savings to the tune of around 0.5 per cent of incomes. If spent, that could make the difference between a mediocre and a robust rate of economic growth next year.

Frances Cairncross, Heriot-Watt University

There will be a continuing modest improvement, driven by the continuing rise in real wages. Improvements in living standards will also include the continuing increases in convenience and affordability of the opportunities created by new technology — the “Uber” effect.

Jagjit Chadha, University of Kent

As we head rapidly towards full employment, one can expect some catch up in wage settlements. On the expenditure side of the household balance sheet, oil prices will induce a temporary fall in inflation and as interest rates seem unlikely to rise very much, households will probably start to feel somewhat better off. Note though that even after extensive deleveraging, household debt to income is still around 140 per cent and leaves households highly vulnerable and perhaps worried about shocks and means that any “feel good factor” may continue to remain absent.

Kevin Daly, Goldman Sachs

We envisage that part of the improvement in real household incomes will come about through higher nominal wage growth but we also expect that an important role will be played by the sharp decline in wholesale commodity prices, the impact of which is still feeding through into retail prices.

Danny Gabay, Fathom Consulting

Wages are now outstripping headline inflation, thanks mainly to lower oil and food prices. We expect that to continue albeit increasingly driven by higher nominal wage growth.

Sarah Hewin, head of macro research Europe, Standard Chartered Bank

Falling unemployment, rising real wages and lower energy bills should provide a substantial boost to household incomes in 2015, and mortgage rates will stay low, we think, for much of the year. That said, households will probably no longer draw on their savings to such an extent, and cuts to welfare and public sector expenditure mean that lower income households may not feel much, if any, improvement in the standard of living.

Neville Hill, Credit Suisse

2015 could be a good year for UK households. The labour market is tightening steadily, with unemployment returning to pre-crisis rates and, importantly, approaching rates where some upwards pressure on nominal wage growth starts to appear. So nominal household income growth should look considerably better than it has in recent years.

And in real terms, it could look even more impressive. Lower inflation — driven by the fall in oil prices and lower imported goods — should accentuate the boost to real income growth. And Mortgage interest payments should continue to trend down next year, even if policy rates start to rise, on the back of the recent record lows in 2y and 5y mortgage rates.

Brian Hilliard, Société Générale

Tentative signs of stronger earnings growth are emerging. Those, coupled with the very low inflation outlook (falling as low as ½per cent), should add to real earnings growth.

Steve Hughes, Policy Exchange

It depends on the household. Those relying heavily on working age welfare payments, which are being limited, will not see as much improvement as those receiving the protected State Pension. Equally, households of public sector workers, who are experiencing imposed pay limitations, are likely to see less improvement than households of private sector workers.

Stephen King, HSBC

The lower oil price will feel a little bit like manna from heaven: even if wage growth remains relatively soft, real wages should pick up thanks to a drop in headline inflation. Still, the evidence still suggests that the labour market is mostly delivering low-productivity, low-pay jobs so unless oil prices keep falling, the old constraints may make a reappearance.

Ruth Lea, Arbuthnot Securities

Average earnings should pick up to 2 per cent to 2.5 per cent next year and CPI inflation will probably be about 1 per cent, if oil prices continue weak, so real earnings should pick up by 1 per cent to 1.5 per cent. Whilst this is quite modest it is a step in the right direction. How this impacts on how households feel, will depend on their spending patterns. But for those households which have large outlays on fuel and food, they will surely feel the improvements in their living standards. For those households that part-rely on interest earnings (eg pensioners) it will be another dismal year.

Gerard Lyons, Chief Economic Advisor to The Mayor of London Boris Johnson

One shock absorber in the recession was wages, not unemployment, as in previous cycles. In 2015 there should be an improvement in finances as measured by wage growth exceeding inflation, but there are reasons to be cautious, as against this, household debt levels remain high, for many taxes are high, people appear uncertain about their future, the cost of accommodation in terms of rent or purchase price is considerable, and despite high employment numbers, there is underemployment with unpaid internships, zero hour contracts and part-time employment high. This can also be linked into the long standing debate about productivity, and a modest improvement in this in 2015 should help wage growth.

Allan Monks, JPMorgan

Average earnings growth will continue to accelerate next year, remaining above inflation for the whole of 2015. This will be accompanied by ongoing employment growth and a rise in average hours as workers rotate from part-time and self employment into full time jobs. Expectations for a later start to monetary tightening will help to keep a lid on mortgage rates.

Kathrin Muehlbronner, Moody's

We expect real incomes to rise in 2015. Growth in average earnings is accelerating, in particular in the private sector. In addition, continuing low inflation, at least for the next several months, and the boost to household finances from lower oil and petrol prices will also support household disposable income.

Andrew Oswald, Warwick University

Barring strange disasters, the answer is a fair amount. Wage pressure is likely to build and build over the next few years.

David Owen, Jefferies

Real wages will rise, partly the product of sub-1 per cent inflation but also an increase in nominal wages as the labour market tightens and job turnover picks up. More of the benefits will flow down through the income distribution, but given where we are coming it will still take a long time for perceptions to change, especially in an environment of ongoing public spending cuts.

In the downturn and subsequent squeeze on real incomes an unusually large number of households appeared to have rundown savings, or reduced pension contributions, in order to meet spending commitments. In previous recessions the net acquisition of financial assets by UK households held up relatively well. In contrast, in the recent recession the net acquisition of financial assets by UK households collapsed, suggesting that as the recovery progress more households may start rebuilding savings.

Vicky Pryce, CEBR

Interestingly latest consumer confidence indicators suggest that people may be worrying more about their finances. Rents and fares still on upward trend and there is greater concern probably about more austerity to come. Interest rate increases in the horizon may be coming into this but shoppers nevertheless have been breaking spending records. And with inflation going down, real wages finally rising and housing market cooling overall and intense competition in the food stores should keep momentum going, as will further increase in employment. But much will depend whether utilities pass oil and gas reductions fully to consumers and what impact further welfare cuts and freezing of some tax credits have on people.

Michael Saunders, Citi

Real wages are starting to rise and, with higher pay growth plus lower inflation, this is likely to be the first year since 2007 with significant real wage growth. Indeed, for aggregate real household disposable income, this is likely to be one of the best years in the last 15 years, with real income growth well above 3 per cent.

Andrew Smithers, Smithers & Co

They should see and thus even feel that their standard of living is rising because real wages should be rising. The low level of household savings seems likely to prevent any real improvement in household finances. Rising house prices will make it likely that owners will think that their finances have improved and those not yet on the ladder will reasonably think that they have deteriorated.

Phillip Shaw, Investec

We expect disposable incomes to rise in real terms and consumer spending growth to step up a gear next year. Moreover 2015 might be the year when GDP per capita finally exceeds its pre-crisis peak. But in terms of the recognition of a strengthening of household finances, perception is often different from reality — many people in the UK will still consider times to be tough. Exactly how this plays out with voters could be a determining factor in the election.

David Tinsley, UBS

Households should see a fairly significant improvement in their finances. There are tentative signs that wage growth is picking up. But even without this, employment growth looks likely to continue to be relatively healthy, so the total income of households should rise. Combined with very low inflation, overall household spending power should increase.

Daniel Vernazza, UniCredit

UK households will feel much better-off next year. The fall in oil prices will push headline inflation below 1 per cent over the next six months; meanwhile a quite strong pick-up in wage growth at the turn of the year is in store as the labour market continues to tighten.

Simon Wells, HSBC

Pay growth is picking up gradually and the oil price is providing a welcome boost to discretionary spending power. We should finally see some meaningful real pay growth. But a rapid turnround seems unlikely: employees are unlikely to feel confident enough to push for steep pay rises.

Mike Wickens, York University

This is already happening and will continue as the demand for labour increases due to steady UK growth.

Chris Williamson, Markit

It should be a noticeable improvement for the majority. Fuel prices look set to fall further, employment should continue rising and we should see a nice pick up in wages (at last!). However, there’s a potential for additional fiscal tightening to hit household finances, and the housing market will most likely provide less of a stimulus than we saw in 2014.

David Riley, BlueBay Asset Management

Falling inflation induced by lower oil prices will support a rise in real wages while the number of households without a wage-earner will continue to fall. But without a pick-up in productivity growth there will not be a sustained recovery in real wages and the growth outlook will begin to deteriorate in the second half of the year.

John van Reenen, Centre for Economic Performance at the London School of Economics

If productivity growth recovers the average incomes should follow as this has been the historical trend. There has not been a serious decoupling between average hourly compensation growth and GDP per hour (productivity) growth. See http://cep.lse.ac.uk/pubs/download/dp1246.pdf A risk to this is that most other countries have seen a larger fall of worker’s share of GDP than the UK over the last 20 years. Were we to follow (say) the US pattern, our situation will be less rosy.

The main economic issue facing the UK is whether productivity growth will recover. I am optimistic on this front as I believe a significant fraction was cyclically related. But if this does not recover then neither will compensation.

Finally, people may not feel this even as it happens. First, compensation includes non-wage benefits like pension contributions which will need to rise. Second, rising inequality implies that the average will outstrip the median.

Andrew Simms, fellow at the New Economics Foundation

We head into 2015 with the latest data looking unpromising. The Office for National Statistics reports Q3 figures showing inequality up and median income down. The poor remain worse off since the crash, especially if the costs of housing are included as the Institute for Fiscal Studies has repeatedly pointed out. But, as a comment on the continuing imbalance toward financialisation in the UK economy, by comparison the net wealth of financial corporations went up by a staggering 373 per cent over the past year. We still make the error in economic commentary of conflating ‘living standards’ with ‘quality of life.’ The former concerns volume of consumption and the latter the quality of our subjective experience of life, which, if you do have enough to eat, a roof over your head and a warm home in winter, tends to be a more meaningful, ‘felt’ measure of progress.

Unfortunately for the Government, even if household finances improve, studies from behavioural economics show that while economic crises and recessions have a clear negative impact on wellbeing, subsequent ‘recovery’ fails to have the equal opposite effect. More positively, however, recent research at the University of California-Berkeley, found a strong link between behaviour shifts that add to our life satisfaction, such as volunteering, sleeping more, spending more time with friends and exercise, that are not to do with raising consumption and are linked to lower energy use.] In addition to the trends above, if austerity measures continue and operate toward the higher end of public spending cuts, those with already less will be hurt worst. The divisive message this sends, of the UK clearly not being in it ‘all together’, corrodes trust and social cohesion, pushing a strong ‘feel bad’ factor, as well as being straightforwardly inequitable. And, I would argue, bad economic policy regardless.

Dhaval Joshi, BCA Research

Even with a decent pace of economic growth in 2015, the median household income will see very little improvement. This reflects the very unbalanced distribution of growth in this cycle. While the top household incomes are doing very well in a winner-takes-all economy, the majority of incomes are stagnating. This pattern is set to continue — as the bargaining power of most income earners is limited.

Nevertheless, households will feel somewhat better off. The recent slump in energy prices — as well as supermarket price wars — can be likened to a tax cut, thereby boosting households’ spending power.

Gary Styles, GPS Economics

We may see headline wage growth exceed the depressed levels of CPI inflation for several months during 2015. This is unlikely to translate into significant improvements in the ‘feel good’ factor for households whilst actual nominal wage growth remains so low. Talk of full employment and near full employment does not appear to be leading to higher nominal wage growth or indeed higher productivity. Widespread underemployment and low paid contract work seem to be overshadowing household confidence.

Sir Christopher Pissarides, Regius Professor of Economics, LSE

The growth that I expect will benefit households as a whole but high incomes will probably benefit more than low incomes. So although households across the income distribution will feel an improvement in living standards wealthier households will see more improvement.

Simon Kirby, economist NIESR

The ‘average’ household should experience rising real disposable incomes throughout next year. Since 2009 wage growth has almost consistently lagged behind consumer price inflation rates. With subdued inflation rates, downward nominal wage rigidities should allow for a modest pickup in real consumer wages. The fall in the oil price, if permanent, will reinforce this.

If the month the in which bank rate is first increased has been pushed back as far as markets expect, this would delay quite significantly a pick-up in household incomes gearing and a potentially serious drag on overall real household disposable incomes.

Samuel Tombs, senior UK economist, Capital Economics

In 2015, a combination of strengthening pay growth and further falls in the cost of essentials should mean that real wages rise by the most since 2007. But with real wages still about 8 per cent below their peak and 5 per cent below their level at the last general election, voters may not give the coalition credit for the recent turnround at the ballot box.

Jonathan Portes, director, National Institute of Economic and Social Research

As with 1 — the central expectation is some growth but relatively little catch up from the very large fall relative to trend.

Andrew Smith, economist

Any improvement is likely to be slow, gradual and uneven. Overall, it finally looks as if average earnings growth will now outpace CPI inflation, ending the long real-term squeeze; but just as the interplay of below-inflation pay increases and tax and benefit changes saw varying impacts across the income scale, there will be differential effects as the overall squeeze abates. Motorists, particularly, though should appreciate the significant (and highly visible) cuts in petrol prices.

The overall household balance sheet has been improving to the extent that on the liability side the debt to income ratio has declined and some have seen house prices improve the asset side too. But the OBR’s own forecasts rely on a rising debt/income ratio from here to generate growth.

Andrew Sentance, PwC and former MPC member

2015 could be the best year yet for rising living standards in the UK since before the financial crisis. There are signs that wage growth is beginning to pick up and should run at 2-3% through the year. Meanwhile the oil price reduction will drive inflation below 1% and it may remain there for much of 2015. At the same time, employment growth is likely to continue and the pensions “triple lock” remains in place, protecting incomes in the retired population. The Treasury survey of independent forecasts suggests that real disposable household income will rise by 2.3% in 2015 after 1.6% growth in 2014. If realised this will be the best two years of disposable income growth since 2006/7. The “feelgood factor” will not return to pre-crisis levels, however. 2006/7 was the culmination of a long expansion going back to the 1980s, whereas we are at a much earlier stage of the current recovery.