Workers more pessimistic over pay growth than Bank forecasts
BRITISH workers are increasingly pessimistic about their pay prospects, anticipating wage growth will slow down again this year.
Households expect pay growth to fall from 2.7pc in 2017 to 2.4pc this year, according to a study of more than 5,000 people by Bank of America Merrill Lynch.
This contradicts forecasts by economists at the Bank of England who believe pay pressures are starting to rise as unemployment is at a 42-year low, forcing employers having to pay more to get the staff they need.
“It is possibly because employees don’t have a route to bargain for more, or are still concerned about their job security and so are happy to have a job even if the pay increase is not what they would like,” said economist Rob Wood at BAML.
Research from the previous month’s survey indicates that the level of pay rises has little influence on workers’ demands for more or the likelihood of them seeking another job. However, a pay cut prompts people to act.
“The change in the structure of work, with more Uberisation, more piecework pay, lower unionisation – these decrease the ability of workers to bargain for more,” Mr Woods said.
It could be that the long-term rate of pay growth has now fallen from 4pc to 5pc per year before the financial crisis to 2pc to 3pc now, he believes.
“There has to come a point where unemployment gets low enough that you do get stronger wage growth, but given what we’ve seen in past few years I am not holding out much hope it is going to happen in 2018,” he said.
Workers’ own expectations are important when setting pay, because it affects how much bosses offer each year, and it influences employees’ decisions to stay in their jobs or to look for a better deal elsewhere.
It also comes at a time when inflation is running above the Bank of England’s 2pc target. Prices rose by 3.1pc in the 12 months to November, indicating that workers are becoming worse off in real terms. Those with the largest pay packets typically received the largest raises in 2017 – those on more than £75,000 won pay rises of almost 3.5pc on average, BAML figures showed. Meanwhile, those on less than £10,000 per year received an increase of only 1.5pc.
However, those with deeper pockets also expect the biggest slowdown, with pay growth set to fall to around 3pc in 2018. Those at the bottom of the heap expect barely any change to the pace of growth.
The higher rate of pay growth at the top may skew the overall figures.
Looking at the average consumer’s predictions, the typical Briton anticipates a slowdown in pay growth from 2pc in 2017 to 1.9pc this year.