Pay is finally rising – and for all the right reasons

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”.

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

Wages by sector © Bank of England

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.)