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UK wage growth rises above forecasts, whilst remaining stubbornly below inflation

Over 32 million people are in work, the highest since comparable records began in 1971

The British government is being squeezed into rethinking its labour reforms across the public sector, as inflation outpaces modest wage growth, reported at 2.1% year-on-year. Forecasts by the Office of National Statistics (ONS) were originally pegged at 1.8% year-on-year.

According to ONS data, across the UK, the labour market is showing firm signs of resilience and recovery, with unemployment rates of 4.3%, down from 4.9% for a year earlier and the lowest since 1975. Over 32 million people are in work, the highest since comparable records began in 1971, and despite these euphoric headlines and renewed confidence in the sector, the retail price index continues to rise sharply, leaving purse strings tight and any meaningful increases in pay muted.

Economists are not clear on the exact reasons for this phenomenon, but research by the Recruitment and Employment Confederation (REC), a body dedicated to representing the whole of the recruitment industry, points to the influx of part time, low quality, cheaply paid jobs in the sector, stagnating productivity growth of employees over the past year, as well as a serious mismatch in skills between job seekers and employees. In addition, it is reported that firms unable to lower their wages during the financial crisis experienced a significant lag in wage increase for the best part of 8 years over the last decade, and as a result, are struggling to recover.

This has raised some vexing concerns by trade unions across the UK, who are demanding that the Government reconsiders its policy on pay to meet the growth in inflation. In response, it has recently been announced by the Government that stringent pay caps previously imposed on police and prison officers will be lifted. Nicola Sturgeon, Scotland’s First Minister has also made promises to remove the pay caps on public sector workers in Scotland in early 2018. Some 14 unions in the state health sector recently also challenged the Government to raise wages by 3.9%, on top of an additional £800 demanded per employee, to compensate for lost earnings over the past 7 years.

Going into the future, pay rises are expected to remain weak, as the economy continues to experience much uncertainty and strain, with only limited signs of change. Only 50% of UK employees are expected to see increased wages of just 1% over the next year, according to latest forecasts by the Chartered Institute of Personnel Development (CIPD). Public sector workers, however, may benefit from pay awards in excess of 1% in 2018.

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