A conundrum confronts U.K. policy makers, both at the central bank and in government: Why aren’t wages keeping pace with inflation, never mind increasing, in what’s likely to be the fastest-growing economy among the Group of Seven industrialized nations?
Consumer prices are rising at an annual pace of 1.9 percent, according to the most recent data. Figures scheduled for release this week, though, will show average weekly earnings dropping by 0.1 percent, according to the median forecast of economists surveyed by Bloomberg News:
Only 38 percent of U.K. employers have conducted a pay review since the beginning of the year, a figure that drops to 26 percent for small- and medium-sized enterprises, according to a survey published today by the Chartered Institute of Personnel & Development, a London-based trade body for the human resources profession. Just 25 percent have made marginal improvements to starting salaries, with the majority leaving them unchanged, the report said:
This is despite a growing recognition among some employers that the cost of living or inflation is placing upward pressure on employers to award their pay increases. Among those workers who have enjoyed a basic pay rise, the median increase has fallen to 2 percent this year from 2.5 percent in 2013.
A separate survey by BDO, which provides accounting and business advice to U.K. companies, showed hiring intentions at their highest level in 16 years:
Job creation will continue to accelerate for the remainder of the year. Graduates from the class of 2014, many of whom will be looking to start their careers this summer, face the most encouraging job prospects of any graduation class since the onset of the financial crisis.
The Bank of England, which is busy preparing the ground to raise its benchmark interest rate from the record-low 0.5 percent level it’s been stuck at since early 2009, is scheduled to deliver its quarterly inflation report Aug. 13. With the laws of supply and demand seemingly suspended in the U.K. labor market, the central bank’s habitual warning about its vigilance on wage growth will ring even more hollow than usual.