Wages set to fall as UK inflation outstrips ‘very weak’ pay rises

Posted on November 14, 2016

Real wages are expected to fall next year as “very weak” pay rises are outstripped by inflation, according to a survey.

The Chartered Institute of Personnel and Development, representing human resources managers, said employers were beginning to face headwinds following the UK’s decision to leave the EU.

The survey found that almost a third of employers expected the fall in sterling since the Brexit vote to increase their costs over the next three months.

John Marshall, UK chief executive of Adecco, a recruitment group, said this might partly explain why more employers were planning to reduce — rather than increase — investment in skills.

Gerwyn Davies, a CIPD labour market analyst, said the reluctance to invest more in skills was set to limit the potential for productivity growth, which was critical to employers’ ability to afford more generous pay increases. He said: “Pay expectations are already weak, and as inflation moves up we can expect a period of low or negative real wage growth for the squeezed middle.”

The survey of 1,024 employers, carried out by the CIPD and Adecco said jobs growth looked set to continue, although it was likely to weaken. The net employment balance, the difference between the share of employers expanding their workforce and those reducing, fell slightly from 27 to 22 over the quarter.

While the median expected pay rise was 1.1 per cent for the year to September 2017, it was 2 per cent for manufacturing, production and services and 1 per cent for the public and voluntary sector.

Almost a quarter expected basic pay to increase between 2 per cent and 3 per cent, while nearly a fifth planned to freeze pay. Many workers will find their pay falls behind inflation, which some analysts expect to peak at 4 per cent in the second half of next year.

The survey found that almost three in 10 of the organisations that employ migrants reported that those workers were considering leaving the UK. More than a third of those companies said it would be harder to recruit EU migrants over the next 12 months as a result of the Brexit vote. Nearly the same proportion thought this would also make it harder to recruit from outside the EU.

Although 42 per cent of employers believed that future restrictions on EU labour could damage their UK operations, just 15 per cent had started to prepare for this outcome.

Three-quarters said they had no plans to relocate current or future operations outside the UK. About 3 per cent said they were considering or had decided to relocate all of their operations, alongside 7 per cent who had similar plans for some of their operations.

About 7 per cent said they had no plans to relocate any of their current operations outside the UK, but were likely to concentrate any future expansion elsewhere. Among the one in 10 organisations considering a move, the most popular locations were Germany, Poland and France.

Separately on Monday, new housing data underlined the difficulties of cash-strapped first-time buyers by highlighting the rising cost of smaller properties.

Rightmove, an online property listings company, said the price of property coming to market had fallen by 1.1 per cent this month, a smaller drop than the 1.8 per cent average over the past six years, and a sign of continuing resilience.

Prices of properties with no more than two bedrooms increased by 1.3 per cent over the month and 8.2 per cent over the year, double the rate in other market sectors.

You must be logged in to post a comment Login