Pay growth set to bounce back in 2018, say Bank of England agents

Pay growth is set to see a welcome rebound next year as companies start hiking wages in the face of mounting recruitment difficulties, according to a Bank of England report.

The latest report from the Bank's agents said firms were finding it increasingly difficult to recruit across a range of activities, which had led to a slight increase in pay growth.

This signalled that pay settlements may rise from a range of 2% to 3% this year to around 2.5% to 3.5% in 2018, the Bank said.

It would come as welcome relief to financially-squeezed British workers, who have been hit by a double-whammy of poor wage growth and surging inflation over the past year.

The Bank last week raised interest rates for the first time in a decade - from 0.25% to 0.5% - as it looked to cool Brexit-fuelled inflation.

Governor Mark Carney said on announcing the decision that the "worst" of the income squeeze was over for households, with wage growth set to pick up.

Real wage growth is the slowest it has been since the 1950s as productivity has struggled, with the trend exacerbated by rising prices caused by the pound's devaluation since the Brexit vote.

The most recent official figures show that real pay fell 0.4% as inflation outstripped average wage growth in the three months to the end of August.

But the Bank's agents' summary points to potentially higher real wages next year, as inflation is set to ease off from a peak just over 3% this autumn while pay could increase by up to around 3.5%.

Economist Allan Monks, at JP Morgan, said: "With churn in the labour market having picked up close to pre-crisis levels, these pay gains for new hires may start to pass through more quickly to the existing workforce."

The Bank's report - which is based on agent interviews with at least 700 firms across the UK between late August and mid-October - also confirmed that growth in economic activity had remained "broadly stable".

It found that businesses expect to spend over the next year at a similar rate to the past 12 months, although investment would be weaker over the following two years amid Brexit uncertainty.

The report said: "Investment plans were being boosted by companies' desire to increase their efficiency and to meet expected increases in demand, but expectations about the United Kingdom's future trading relationships were dragging on spending."

It added that these concerns included economic uncertainty and the future availability of overseas labour.

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