Weak pay growth expectations put cloud over UK economic outlook
– Weak pay growth set to persist in 2015 according to survey of employees
– Only one-in-five employees expect a pay rise of 2% or more this year
– More than one-third expect pay freeze while further 7.5% anticipate pay cut
– Data suggest average increase of just 1.1% in 2015
The data were collected between 11th and 15th March. The survey results are available for regions, employment type and demographic categories on request.
A survey of just under 1,000 (973) employees in March showed an ongoing lack of pay pressures in the economy at the end of the first quarter.
The representative panel of British households, polled by IPSOS Mori on behalf of Markit, found that just one-in-five employees expect their pay to rise by 2% or more in 2015. Just 8% anticipate a pay rise in excess of 3%.
Only 10% of public sector employees expect their pay to rise by more than 2% compared to 27% in the private sector.
Meanwhile, just over one-in-three employees (35%) expect to see their pay frozen compared with 2014, while a further 7% expect their pay to be cut.
In the public sector, the proportion of employees expecting a pay cut or freeze rises to 45% compared to 40% in the private sector.
The survey results point to an estimated average (mean) increase in earnings of just 1.1% in 2015. The average expected pay increase in the public sector drops to an estimated 0.8% compared to 1.2% in the private sector.
An average expected pay rise of 1.7% in manufacturing compares with just 0.8% in construction and 0.9% in retail. At 1.4%, the expected pay rise in financial and business services is above average.
The size of the expected annual pay increase in 2015 rises by salary band. However, only modest growth is signaled for all incomes. A mere 0.6% rise anticipated by those earning under £15k per annum compares with 1.5% at the top end (those earning above £58k).
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 survey, Chris Williamson, chief economist at Markit. said:
“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.
“The weakness of pay growth is not just a consequence of public sector pay being hit by austerity-related spending cuts. There are scant signs of pay growth reviving in the private sector, where 40% of employees are either facing a pay freeze or pay cut this year.
“The only real signs of rising pay pressures are among new hires, where skill shortages are forcing employers to offer higher salaries to attract suitable staff. People not changing jobs, constituting the vast majority of the workforce, are clearly struggling to negotiate higher pay, linked partly to record low inflation.
“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% expansion currently being forecast by the Bank for 2015. The absence of upward pay pressures means interest rates are likely to stay low for longer, with the survey data adding to the likelihood of rates not rising until next year.”
