BOE Sees Stronger Wage Growth as Hiring Difficulties Worsen

British pay packets are starting to pick up as the availability of workers declines, according to a network of businesses across the country monitored by the Bank of England.

Pay growth has edged up recently and is expected to be somewhat higher in 2018 than this year, the BOE said in its Agents’ Summary published Wednesday. Settlements next year will likely be around 2.5 percent to 3.5 percent, up from 2 percent to 3 percent.

While the pay figures provide support to the BOE’s decision last week to raise interest rates for the first time in a decade, there was less positive news on investment. Modest growth in spending is expected to continue for the coming year, but expectations in the following two years were “weaker,” the BOE said. Economic uncertainty was the biggest drag on plans, with Brexit also cited, according to the survey.

Governor Mark Carney cited the agents’ report last week, saying there’s “quite strong survey evidence” backing the BOE forecast that wage inflation will average more than 3 percent over the next three years. That would mark a return of real spending power for consumers after pay packets failed to keep up with price growth this year.

The pound’s fall since the U.K.’s vote to leave the European Union has pushed inflation a full percentage point above the bank’s 2 percent target, and sluggish wage growth means consumers have been squeezed. But the BOE report adds to signs that better times may be around the corner for workers: another survey on Wednesday showed that starting salaries in particular are being boosted as recruiters struggle to meet rising demand for staff.

Still, Carney also said that workers shouldn’t expect the type of improvements seen in pay before the recession.

“(Pay) will gradually build through 2018 into 2019, and the only thing I don’t want to mislead is that the rates of wage growth we see towards the end of the forecast are still below historic averages.”
Source: Bloomberg