Wage growth is expected to pick up over the course of 2018, according to new data published today by the Bank of England, with employers still intending to add more workers amid an historically tight labour market.
Pay settlements will be between 2.5 per cent and 3.5 per cent higher next year, an increase of half a percentage point compared to this year, according to the Bank’s agents’ summary of business conditions.
A separate survey of recruiters published today by the Recruitment and Employment Confederation (REC) painted a similar picture, with growth in starting salaries remaining above normal levels.
The net balance of recruiters stating that salaries for new hires are rising increased to 61.2 in October, the second-highest level since the Brexit vote in June 2016. The number of candidates available for jobs also continued to shrink, particularly in the capital.
The latest figures support the Bank of England’s claim that wages are set to pick up. The Bank last week raised interest rates for the first time in a decade, with the predicted increase in wage growth a key part of the justification for the hike in the face of relatively weak economic expansion.
The sluggish performance of wage growth over the past year when compared to prices has been one of the key stories of 2017, making the Bank unwilling to raise interest rates before its latest meeting despite a surge in inflation well above its two per cent target.
Bank governor Mark Carney last week cited the “more limited supply of labour” as a key reason “slack” in the economy was running out, meaning inflationary pressure was more likely to build in the coming months.
The Bank expects inflation to fall back amid tightened conditions, meaning living standards will be able to rise once more.
The surveys imply “a strong recovery in year-over-year growth in average weekly wages ahead”, said Samuel Tombs, chief UK economist for Pantheon Macroeconomics. However, he warned that pay may not be boosted to the same extent as the surveys suggest because of the frictions from inflated house prices and uncertainties over job prospects.
Read more: How to solve the UK’s low wage endemic