Pay rises to outstrip inflation in 2018, Bank of England predicts
Survey shows employers in almost all sectors plan more generous increases this year
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.