August 15, 2014 - Rachel Miller
Unexpectedly slow wage growth in the past quarter has prompted the Bank of England to halve its forecast for average wage growth.
Figures from the Office for National Statistics (ONS) for the period from April to June show that wages, including bonuses, fell by 0.2%. Excluding bonuses, wages rose by 0.6% – the slowest growth rate since 2001, when records began.
The Bank of England has halved its forecast for average wage growth, saying it now expects average salaries to rise by 1.25% this year. At the same time, however, the bank has upgraded its growth forecast for this year to 3.5% from 3.4%, and for 2015 to 3%, up from 2.9%.
David Kern, chief economist at the British Chambers of Commerce (BCC), described the slow wage growth as “a warning sign that the economic recovery, although on the right track, is still fragile.”
Frances O'Grady, TUC general secretary, said: “It is hugely concerning to hear that the bank has cut its forecast for wage growth in half. It's not just wage stagnation that's pushing down incomes; living standards are falling because so many of the new jobs being created are low-skilled, don't have enough hours or are in low paid self-employment.”
The latest pay and settlement data from Croner shows that pay settlements were down 0.5% from 2.3% in February to 1.8% in July, and pay freezes increased by 0.8% in the past month.
Viv Copeland, head of reward at Croner, said: "The movement in the settlement and forecast figures from last month is a downward trend. The news of higher levels of employment than we’ve seen for a long time does not appear to be flowing through to overall pay awards yet.”
And a new report from the Chartered Institute of Personnel and Development (CIPD) predicts that wage growth is “expected to remain weak”. Its Labour Market Outlook survey of 1,000 employers suggests that poor productivity – at 4% lower than its pre-recession level – is a key contributing factor.
Mark Beatson, CIPD chief economist, said: “We urgently need to see jobs growth accompanied by productivity growth for workers to feel the benefits of the recovery too. This would create the economic headroom for real wage increases.”
The CIPD survey found that two fifths of employers have conducted a pay review since the start of 2014, and the number of employers who plan to freeze pay has risen to 10% in summer 2014 from 8% in spring 2014. Even so, around two thirds of employers plan to recruit employees in the next three months.