Bri­tish rate hike closer as pay rises set to be largest since 2008

Irish Independent - Business Week - - BUSINESSWEEK - David Mil­liken

BRI­TISH work­ers are in line for their big­gest pay rises since 2008 this year as a higher min­i­mum wage kicks in, ac­cord­ing to a Bank of Eng­land sur­vey that is likely to fuel con­cerns among its pol­i­cy­mak­ers’ over in­fla­tion­ary pres­sures.

Last week the cen­tral bank said in­ter­est rates would prob­a­bly need to rise sooner and by some­what more than it had pre­vi­ously thought to con­trol above-tar­get in­fla­tion.

Wage growth in Bri­tain has been lack­lus­tre since the fi­nan­cial cri­sis.

But with un­em­ploy­ment at its low­est since 1975 and EU im­mi­grants less keen to come to Bri­tain ahead of its de­par­ture from the bloc, the BoE thinks pay is be­gin­ning to pick up.

Firms plan to of­fer av­er­age pay set­tle­ments of 3.1pc – the high­est since 2008 – com­pared with 2.6pc last year, the BoE said in an an­nual sur­vey pub­lished on Wed­nes­day.

The big­gest planned rises were in con­sumer ser­vices, where large num­bers of staff are paid close to the min­i­mum wage.

Bri­tain’s min­i­mum wage for those aged 25 and over is due to rise by 4.4pc in April to £7.83 (€6.34) an hour, while pay for some younger work­ers will rise by more than 5pc.

Higher-paid staff are less likely to ben­e­fit, with busi­nesses try­ing to limit ba­sic in­creases in man­age­ment pay to 1-2pc to keep down over­all wage bills, the BoE said.

Busi­nesses also re­ported cost pres­sures from higher manda­tory pen­sion con­tri­bu­tions, in­creased in­fla­tion, a lack of for­eign work­ers and dif­fi­culty re­cruit­ing and re­tain­ing staff.

“Ex­pec­ta­tions that the Bank of Eng­land will raise in­ter­est rates in May will likely be fu­elled by their re­gional agents re­port­ing a pick-up in com­pa­nies’ ex­pected av­er­age pay set­tle­ments,” said EY Item Club econ­o­mist Howard Archer.

Bank of Eng­land gover­nor Mark Car­ney must weigh in­fla­tion­ary pres­sure in the do­mes­tic econ­omy against the po­ten­tial im­pact of Brexit as he con­sid­ers mov­ing rates.

Bri­tish in­fla­tion hit its high- est in more than five years in late 2017, due to the pound’s tum­ble af­ter June 2016’s Brexit vote push­ing up the cost of im­ports. Even as this ef­fect fades, the BoE ex­pects in­fla­tion to fall only slowly as do­mes­tic pres­sures build.

A Reuters poll on Wed­nes­day showed most econ­o­mists ex­pect the BoE to raise rates by a quar­ter of a per­cent­age point to 0.75pc in May, and fi­nan­cial mar­kets see a roughly 50pc chance of a fur­ther rise be­fore the end of 2018.

Last week, the BoE fore­cast an­nual pay growth would reach 3pc by the end of 2018, up from 2.5pc in the year to Novem­ber 2017.

The BoE has been overly op­ti­mistic about pay be­fore.

But it said on Wed­nes­day that pay deals last year were big­ger than firms had pre­dicted in its sur­vey a year ago.

The sur­vey was based on replies from 368 busi­nesses em­ploy­ing 845,000 staff. (Reuters)

Wage growth in Bri­tain has been lack­lus­tre since the fi­nan­cial cri­sis

Bank of Eng­land gover­nor Mark Car­ney has many fac­tors to weigh up as he con­sid­ers mov­ing rates

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