All of our panel of City economists see RPI inflation peaking in the next month or two and thereafter coming slowly down. Our rounded average of the predictions from seven City forecasting bodies shows the RPI, which is currently at 4% for the year to October, falling to 3.6% in the year to February. The February figure will be released in mid-March and as such will be the extant measure when many companies’ April 2018 pay reviews take place.
The Budget on 22 November sparked a debate over the prospects for wage growth over the coming period. The Bank of England is on one side, while on the other stand the government’s Office for Budgetary Responsibility (OBR) and the Institute for Fiscal Studies (IFS).
Earlier, in announcing its decision to raise interest rates marginally on 2 November, the Bank argued that while pay increases are currently subdued – mostly because employment has been growing in lower-paid occupations and industries – it expected earnings growth to strengthen during 2018. This will occur, the Bank said, ‘as the tightening labour market starts to put more widespread upward pressure on wage demands’.
The Bank’s position is perhaps a logical corollary of its decision to raise interest rates, a move designed to reduce the potential for over-heating in the economy. But it nevertheless highlights a number of signs of increasing wage demands.
One of these is greater ‘churn’ in the labour market, with the proportion of people moving from one job to another close to the pre-recession rate. The Bank thinks this might indicate confidence among workers about their prospects in the labour market, which could increase pressure on employers to retain them by raising wages.
The Bank’s agents have also found employers are more willing to award bigger pay rises. In their November report, they found recruitment difficulties had increased, contributing to a slight increase in pay growth, with expectations that settlements could be clustered around 2.5% to 3.5% in 2018, compared with 2% to 3% this year.
Our own research on pay in two key sectors tends to support the Bank’s findings. In call centres, pay settlements have increased slightly, and recruitment and retention problems have worsened. Meanwhile in engineering, pay growth for shopfloor staff is greater than for white-collar workers and managers, with recruitment pressures playing a part.
However the Bank also points to a potential offset to its predictions of wage growth, namely that employers’ uncertainty over the economic outlook could affect their willingness to raise pay until they have more clarity about future demand for their products and services.
This is where the IFS and the OBR come in, warning of bad times around the corner, in an echo of the old Noel Coward song. In the wake of the Budget, both bodies think economic and productivity growth will be weaker than before and have downgraded their predictions for earnings growth. They could be right but they may not be. While the Budget increased spending and reduced tax, the overall policy position is still one of austerity, and the OBR and IFS positions reflect this.
In at least two respects though, the Budget has contributed to potential upward pressure on pay. The first is the chancellor’s announcement of a 4.4% rise in the National Living Wage, from £7.50 to £7.83 from 1 April 2018. The second is his reiteration of the government’s intention to ‘move away from’ the 1% public sector pay cap and a promise to fund an NHS pay deal linked to productivity gains, and justified on recruitment and retention grounds. Any NHS award will influence claims in the public sector, and could be a trigger for a more generalised catch-up after years of restraint, perhaps leading to spillover effects in the private sector.
The latest IDR analysis of pay settlements shows that Continue reading Private sector pay settlements remain at 2.4%
Inflation could rise to just below 4% on the all-items RPI measure by the autumn, according to our panel of City economists. Thereafter it could fall, but slowly. This assessment is based on our rounded average of the predictions from eight forecasters. The panel divides evenly between those who see RPI reaching 4% and those who think it is unlikely to rise this far. The main point of difference is based on whether the upward pressure on import prices from sterling’s previous depreciation, following the vote to leave the EU, have mainly worked through, or whether most of these effects remain to be felt. Continue reading Forecasters think inflation could rise to just below 4% by autumn
In this case study we look at the pay agreement covering the civil engineering works currently being undertaken to construct the nuclear power station at Hinkley Point in Somerset, work on which began properly in March. The pay structure’s guiding principle is progression via the acquisition of skills, and as such, may be a model for pay systems in other parts of the economy. Continue reading Nuclear construction pay agreement
Our latest analysis of trends in pay awards shows that private sector settlements have risen from 2% to 2.4% at the median, mainly as a result of companies acting to raise rates at the lower end of their pay structures to bring them into line with the new statutory minimum rates. Continue reading Viewpoint: Pay squeeze in sharper focus than before
This election is remarkable for the number of manifesto commitments relating to employment, especially those emanating from the opposition. In particular, Labour’s manifesto contains a 20-point plan for ‘security and equality at work’. And while the Conservatives’ manifesto is not as comprehensive as Labour’s, it contains a number of important statements, as well as revisiting previous manifesto commitments that have not yet been enacted. Continue reading General election: the parties’ policies on employment issues
The cost of living as measured by the all-items Retail Prices Index (RPI) rose to 3.2% in the year to February, up from 2.6% in the year to January, according to the latest data from the Office for National Statistics (ONS).
The main upward effect came from motoring expenditure – Continue reading Inflation rises sharply in March data from ONS
The labour market continues to perform strongly on the main measures, according to the latest statistics from the Office for National Statistics (ONS), for the period from November 2016 to January 2017. Employment has risen yet again and unemployment has fallen further. Economic inactivity is also lower, while redundancies and vacancies show little change. Continue reading Labour market continues to break records
Following the vote to leave the EU, we began to hear anecdotal evidence from retailers and other employers that many migrants from the ‘EU8’ countries that joined the EU in 2004, such as Hungary and Poland, were leaving the UK. Continue reading Viewpoint: Brexit, immigration and the impact on pay