Wage growth is set to outpace inflation this year and rise at its fastest rate since the 2008 financial crisis, according to a Bank of England survey.
Private sector companies are expected to raise average pay by 3.1% in 2018, marking a jump from the better-than-expected 2.6% rise in 2017, numbers crunched by the Bank’s agents suggest.
It would be the highest rise in private sector pay in a decade, having last been higher in 2008 at around 3.5%.
The overall increase could also mean that British wages will finally be able to outstrip inflation, which held steady at 3.0% in January after hitting a recent peak of 3.1% in November.
Consumer services are expected to see one of the biggest pay rises this year (John Giles/PA)
The Bank of England said in its latest inflation report last week that it expects the Consumer Prices Index (CPI) to “fall back gradually” over the next three years, but remain above its 2% target in the final two years of its forecast.
The lion’s share of inflationary pressures have come from the Brexit-hit pound which has driven up the cost of imports and put the squeeze on households whose wages have failed to outstrip CPI.
This year’s increase is expected to be “broad-based” with only the construction sector to see pay rise at the same rate as 2017 at 3.2%.
That is compared with consumer services – accounting for the likes of hotels, hospitality and pubs – with staff expected on average to see pay rise 3.9%, up from 3.2% a year earlier, as companies start to offer the National Living Wage.
But the agents’ summary explained that most firms were planning to limit management pay increases to 1% to 2% “in order to hold down their overall pay settlements”.
Business services would experience one of the lowest rates of wage growth at 2.5%, but that would be above the 2017 rate of 2.1%, while workers in manufacturing will see rates of pay rise around 2.7%, up from 2.4% last year.
On top of the National Living Wage, private companies said total labour cost growth this year would be driven by staff recruitment and retention, employer pension contributions, higher consumer price inflation and the availability of foreign workers.
Howard Archer, chief economic advisor at EY ITEM Club, said the results of the agents’ report are likely to put further pressure on the Bank of England to raise interest rates.
“The Monetary Policy Committee (MPC) will highly likely see the findings of the February Bank of England’s regional agents report on business conditions as supportive to the more hawkish stance that they adopted at their February meeting,” he said.
“The MPC has highlighted rising pay pressures amid a tight labour market as one of the key factors in the likely need to raise interest rates over the coming months.”