British workers are set for the biggest annual pay rise in a decade, according to forecasts from the Bank of England’s agents, as the rising minimum wage and staff shortages finally begin to lift wages above inflation.
Companies expect to increase pay by 3.1% in 2018, compared with 2.6% last year, according to the latest survey of private-sector employers by the Bank’s network of agents across the country. A total of 368 businesses responded to the survey carried out between late November and mid-January, accounting for 845,000 UK employees.
The early indications for pay growth in the report, which is closely watched by rate-setters on the Bank’s monetary policy committee, suggest wages should begin to rise above the rate of inflation, which stood at 3% in January. The survey pointed to pay growth across the board, barring the construction sector, which is flirting with recession amid falling rates of work since the Brexit vote.
Threadneedle Street has been looking for signs of pay growth in order to justify raising interest rates from the lowest level in a decade from as early as May. The central bank said this month it may need to increase the cost of borrowing earlier and to a greater extent than previously expected to counteract stubbornly high inflation.
The Bank’s governor, Mark Carney, has argued growth in workers’ pay should begin to put pressure on inflation this year, offsetting a gradual fall in the rise in prices that took hold following the EU referendum, when the sudden drop in the pound pushed up the cost of importing food and fuel to Britain.
The report said recruitment difficulties among firms was at an “elevated level” and that the biggest pay rises were likely to come among consumer services firms, which are likely to have more workers on the minimum wage, which is set to rise from £7.50 to £7.83 from April.
The findings of the report come after the International Monetary Fund issued a warning over the health of the UK economy as Britain leaves the EU, urging ministers to improve transport infrastructure, education and to spend more on research and development to offset the impact from Brexit.
Warning that leaving the European Union stands to compound Britain’s poor track-record in boosting worker productivity since the financial crisis, the fund said it was vital for ministers to focus their efforts on boosting efficiency levels at a time when private-sector investment is falling below expectations.
It said the harder Brexit makes it for businesses to trade with the EU and to employ foreign workers, the more negative the impact will be for the economy. “Brexit will not help resolve the problem of lackluster productivity,” it added.
The warning comes as the foreign secretary, Boris Johnson, mounts a renewed defence of Brexit with a major speech. It also comes after the government launched an industrial strategy late last year to boost spending on infrastructure, skills and research projects.
The Washington-based lender of last resort said international competition usually encourages firms to boost their efficiency and invest more, while immigration helps to provide them with employees with the skills they need – but that changes arising from Brexit could hurt the economy.
The fund said it assumes a 40% fall in next exports of financial services to the EU as a consequence of the UK leaving the single market, while manufacturing firms that rely on foreign suppliers, such as carmakers, could be hit if trade with EU partners becomes more expensive or complicated by new rules.
It also said British firms have been less-willing to invest than would have been expected given the current upswing in global economic growth because they are waiting for details about the future relationship between the UK and the EU.