Weak pay growth threatens UK economy

A survey of employees showed an ongoing lack of pay pressures in the UK economy at the end of the first quarter.

The poll, carried out by IPSOS Mori on behalf of Markit, which is best known for its Purchasing Managers’ Index, found that just one-in-five employees expect their pay to rise by 2% or more in 2015.

At the same time, just over one-in-three employees expect to see their pay frozen compared with 2014, while a further 7% expect their pay to be cut.

The research points to an estimated average increase in earnings of just 1.1% in 2015 but the average expected pay increase in the public sector drops to an estimated 0.8% compared to 1.2% in the private sector. And an average expected pay rise of 1.7% in manufacturing compares with just 0.8% in construction and 0.9% in retail.

There was little variation in pay expectations by region. The most buoyant picture was seen in the South West, with a 1.6% expected increase while employees in the East of England were the most downbeat, expecting incomes to rise by just 0.7%.

Commenting on the findings, Chris Williamson, chief economist at Markit, says: “The survey data indicate that there are clearly few signs of pay growth picking up in 2015. This is a major concern as the sustainability of the economic upturn is largely dependent on pay growth reviving.”

He adds: “Like many others, the Bank of England is expecting a revival of pay growth to help support ongoing robust economic growth this year. These data suggest policymakers are likely to be disappointed, meaning economic growth is likely to fall short of the 2.9 percent expansion currently being forecast by the Bank for 2015.”