Money (6)

A rise in productivity is the key to wages growing at a considerable level in 2016, a think tank has warned.

The Resolution Foundation said that workers could see wages rise by just 1% in real-terms if productivity does not increase and inflation grows faster than expected. Low inflation over the past 18 months has allowed wages to rise in real-terms for the first time in around six years.

The think tank also warned that skills shortages and the availability of staff would also affect pay increases.

Laura Gardiner, senior policy analyst at Resolution Foundation, said:

"Strong output growth and prolonged low inflation could result in the highest level of real wage growth in over a decade.

"But equally, a failure to build on the early signs of a productivity recovery, combined with a swifter-than-expected return to target inflation, could send real wage growth tumbling to less than 1%."

If wages grow by less than 1% in 2016, it could mean that wages do not hit their pre-crisis peak until 2020 at the earliest.

"The introduction of the new national living wage should help to focus minds on boosting output, particularly in low-paying sectors who are most affected by the new higher wage floor."