Workers’ plights

Pay rises stop as UK firms wait to see how Brexit will play out

BUSINESSES are cutting back pay rises as optimism in the strength of the economy has begun to fade, harming hopes that a prolonged recovery could boost living standards.

Just 46.5pc of companies have given their workers a pay rise in the past year, according to a study from the Recruitment and Employment Confederation. In the first half of 2017 more than two thirds had given their staff a raise.

Unemployment is at its lowest level in more than 40 years and employers have complained of a skills shortage that could make it difficult to grow their businesses any further. Yet this has not led to the sharp pick-up in wage growth that economists had anticipated.

Annual average weekly earnings grew by 2.4pc in the three months to June. This is the same level as inflation, indicating workers received no realterms pay rise over the past year.

Employers are still hiring more workers but at a reduced pace, REC found. Its survey shows 42pc of companies increased headcount in the past year. That is down from 54pc who could say the same 12 months ago. The proportion imposing a headcount freeze is up from 14.6pc to 18.6pc.

Capacity constraints are easing too: a year ago 40pc of companies said they would have to hire more staff if they wanted to expand. Now 31.5pc say they have no spare capacity.

It may make difficult reading for the Bank of England, which raised interest rates this month on the basis that the economy is bumping up against its capacity constraints, forcing companies to pay more to hire scarce workers in a tight jobs market.

Officials said rates should rise from 0.5pc to 0.75pc to rein in inflationary pressures, with more rate rises likely over the coming years. But if wage pressures are fading instead, then it could remove some of that rationale for tighter monetary policy.

“Our data shows employer confidence in the economy dipping in the face of uncertainty around the terms of the UK’S departure from the EU. So far this rising concern has only had a limited effect on employers’ own hiring plans though, with hiring intentions still in positive territory,” said Neil Carberry, chief executive of REC.

“UK business needs to know what the Brexit deal will look like soon. The EU summit at the end of June failed to answer many questions and concerns – clarity on our future trading relationship and a comprehensive mobility and migration deal with the EU will give employers the capacity to invest and create jobs.”

Pay growth varies by industry as different parts of the economy respond in different ways.

Construction workers’ pay rose by 5.3pc over the past year, the Office for National Statistics said. Those in manufacturing received a 2.5pc raise.

By contrast, workers in financial and business services saw their pay increase by an average of just 1.5pc in the 12 months to June.

Accelerating wage rises in the public sector have also boosted total growth though they do not reflect market forces directly.

Public sector pay increased by 1.5pc in 2016 and 2pc in 2017, and is up to 2.2pc over the past 12 months.