British firms plan biggest pay rises since 2008

Remigio Civitarese
Febbraio 15, 2018

A long-awaited pay rise for United Kingdom workers is finally here, according to a Bank of England survey of businesses.

While the stickiness of inflation will make for itchy trigger fingers among rate setters at the Bank of England, the signs of the economy faltering suggest there's a risk of higher interest rates exacerbating a nascent slowdown.

The data come on the heels of recent warnings from the Bank of England that interest rates may have to be hiked more aggressively than previously thought in order to control inflation, putting a May hike in play. Data from mortgage lender Halifax have also shown house prices falling for a second successive month while an index of consumer spending from Visa (NYSE:V) showed a 1.2% annual decline as shoppers struggled with the combination of high prices and sluggish wage growth.

Firms plan to offer average pay settlements of 3.1 percent - the highest since 2008 - compared with 2.6 percent past year, the BoE said in an annual survey published on Wednesday.

Only the construction sector is predicted to see settlements stay the same, while consumer services workers will see the biggest rise as companies are forced to comply with the National Living Wage.

Britain's minimum wage for those aged 25 and over is due to rise 4.4% in April to £7.83 an hour, while pay for some younger workers will rise more than 5%.

Businesses also reported cost pressures from higher mandatory pension contributions, increased inflation, a lack of foreign workers and difficulty recruiting and retaining staff.

Most economists expect the Bank of England to raise interest rates by a quarter percentage point in May to 0.75%.

The inflation in the United Kingdom reached its highest levels in five years at the end of 2017, after the British pound depreciated after the vote for Brexit, which has shaken imported goods in the country. The financial markets are even set for another rise before the end of 2018. The next official labour market update will not be until next week but the last showed total pay rising at an annual rate of 2.5 per cent, thus losing the race to keep up with prices.

Analysts say it is likely to increase the gap between the British economy that Brexit expects and other countries that benefit from global growth.

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