Pay is finally rising – and for all the right reasons

Wages are rising, and not because of high inflation. Companies are volunteering to pay their staff more. That’s exactly the way economies are supposed to work, says Merryn Somerset Webb


Britain is getting a pay rise as companies volunteer to pay staff more

We wondered if 2014 would be a year of rising wages. And, while it didn't start out that way, it did end on a good note: by the last quarter of the year real wages were rising across the board. ONS numbers had confirmed what we rather expected that anyone who had managed to stay in full time work since 2007 has had rather a good crisis (see my post on it here).

So what of 2015?

On this front at least there is more happy-ish news. Last week, the Bank of England released its February Agents' Summary of Business Conditions. This, as befits its title, was almost universally ignored. But dig deep, as Halkin's Robin Aspinall has and you will see that "contacts reported increasing wages pressures in some subsectors".

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These findings, says Aspinall, "fall short of sensational" but it does seem that pay settlements are finally "being driven higher across all sectors." Better still, this is happening for good, not bad, reasons.

Rises aren't inflation linked (not a huge surprise, given the lack of inflation), they are instead about "companies volunteering pay rises in order to retain staff, to improve productivity and to manage their businesses effectively" see the chart from the report below

Influences on expected growth in total labour costs per employee in 2015 relative to 2014


Economies should work like this and if we do see rising productivity as a result (I'll write more on our own views on this in a later post) it will seem, as Aspinall says, "almost too good" to imagine.

If we don't, rising wages will eventually simply result in rising inflation, something most long-term residents of the UK will find all too easy to imagine. (See also John Stepek's latest thoughts on the amount of inflation knocking around in the UK at the moment.)

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.