Pay rises to out­strip in­fla­tion in 2018, Bank of Eng­land pre­dicts

Sur­vey shows em­ploy­ers in al­most all sec­tors plan more gen­er­ous in­creases this year

The Guardian - - INSIDE | NEWS - Richard Part­ing­ton Eco­nomics correspondent ▲

Bri­tish work­ers are set for the big­gest an­nual pay rise in a decade, ac­cord­ing to a fore­cast from the Bank of Eng­land, as the ris­ing min­i­mum wage and staff short­ages fi­nally be­gin to lift wage in­creases above the rate of in­fla­tion.

Com­pa­nies ex­pect to in­crease pay by 3.1% in 2018, com­pared with 2.6% last year, ac­cord­ing to the lat­est sur­vey of pri­vate-sec­tor em­ploy­ers by the Bank’s net­work of agents across the coun­try. A to­tal of 368 busi­nesses re­sponded to the sur­vey car­ried out be­tween late Novem­ber and mid-Jan­uary, ac­count­ing for 845,000 UK em­ploy­ees.

The early in­di­ca­tions for pay growth in the re­port, which is closely watched by rate-set­ters on the Bank’s mon­e­tary pol­icy com­mit­tee, sug­gest wages should be­gin to rise above con­sumer price in­fla­tion, which stood at 3% in Jan­uary. The sur­vey pointed to pay growth across the board, bar­ring the con­struc­tion sec­tor, which is flirt­ing with re­ces­sion amid fall­ing ac­tiv­ity lev­els since the Brexit vote.

Thread­nee­dle Street has been look­ing for signs of pay growth in or­der to jus­tify rais­ing in­ter­est rates from the low­est level in a decade, po­ten­tially from May. The cen­tral bank said this month it may need to in­crease the cost of bor­row­ing ear­lier than pre­vi­ously thought, and to a greater ex­tent, to coun­ter­act stub­bornly high in­fla­tion.

The Bank’s gover­nor, Mark Car­ney, has ar­gued that pay growth would be­gin to put pres­sure on in­fla­tion this year, off­set­ting a grad­ual fall in the in­fla­tion rate that had spiked after the EU ref­er­en­dum, when the sud­den drop in the value of the pound pushed up the cost of im­port­ing food and fuel to Bri­tain.

The re­port pointed to re­cruit­ment dif­fi­cul­ties among firms and said the big­gest pay rises were likely to come among con­sumer ser­vices firms – in­clud­ing ho­tels and cater­ing – which are likely to have more work­ers on the min­i­mum wage, sched­uled to rise from £7.50 to £7.83 from April.

The find­ings of the re­port came after the In­ter­na­tional Mon­e­tary Fund is­sued a warn­ing over the health of the UK econ­omy as Bri­tain leaves the EU, urg­ing min­is­ters to im­prove trans­port in­fra­struc­ture and ed­u­ca­tion and to spend more on re­search and devel­op­ment to off­set the im­pact of Brexit.

Warn­ing that leaving the EU is likely to worsen Bri­tain’s poor track-record in boost­ing worker pro­duc­tiv­ity since the fi­nan­cial cri­sis, the fund said it was vi­tal for min­is­ters to fo­cus on boost­ing ef­fi­ciency lev­els at a time when pri­vate sec­tor in­vest­ment is fall­ing be­low ex­pec­ta­tions.

It said the more dif­fi­cult Brexit makes it for busi­nesses to trade with the EU and to em­ploy for­eign work­ers, the more neg­a­tive the im­pact will be for the econ­omy. “Brexit will not help re­solve the prob­lem of lack­lus­tre pro­duc­tiv­ity,” it added.

In­ter­na­tional com­pe­ti­tion usu­ally en­cour­ages firms to boost their ef­fi­ciency and in­vest more, the IMF said, while im­mi­gra­tion helps to pro­vide them with em­ploy­ees with the skills they need – but changes aris­ing from Brexit could hurt the econ­omy.

The fund said it as­sumes a 40% fall in ex­ports of fi­nan­cial ser­vices to the EU as a con­se­quence of Bri­tain’s leaving the sin­gle mar­ket, while man­u­fac­tur­ing firms that rely on for­eign sup­pli­ers, such as car­mak­ers, could be hit if trade with EU part­ners be­comes more ex­pen­sive or is com­pli­cated by new rules.

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