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David Noble FCIPS
What wage rises tell us
This month’s UK PMIs may have given the UK little to celebrate, but signs of economic recovery are still fluttering through and there are glimmers of hope that the recovery may still be progressing albeit in fits and starts.
I say this because according to a report by the Resolution Foundation, private sector wages are growing at their fastest rate for 13 years which shows a healthy optimism for the future and a wide economic bandwidth where companies are doing so well they can offer more rewards to their staff.
The Resolution Foundation is an independent think tank focussed on the concerns of low and middle-income earners. This is their fifth annual report mapping out the scale of low pay and the groups most affected. Real wages have started to grow quickly in part, supported by low inflation, which at record-low levels is set to continue for some time yet.
Average weekly earnings in the private sector, rose between 3.4% and 3.6% between May and July - according to the Foundation, and showed the strongest wage growth since July 2002. In that year rises were at 3.45%; and in May 2001, they were at 3.45%.
However, these bright statistics for the private sector do come with a caveat. Such is the unusual rise, the Foundation warns that these levels are unlikely to be maintained in 2016 if inflation, that ever-looming cloud, rises. And, average pay is still well-below its pre-crisis peak, so there has been almost a decade of lost wage growth in total which will take some catching up.
The PMIs this month also certainly reflected this development in employment figures. The level of construction job creation was at a three-month high (link) and staffing levels in services and manufacturing remained fairly steady. The think tank is convinced that this increase in wages will support higher levels of productivity in new projects and a reduction in the level of risk aversion as companies start forging ahead.
Some significant challenges still lay ahead. The number of graduates in non-graduate roles is rising, and the level at which workers move between jobs and companies to achieve career progression and higher pay rates is also at a downbeat rate. This will inevitably be risky for a recovering economy and equally puts more pressure on employers to keep good staff and to offer incentives and training to keep them at a productive level.