Wage growth across the manufacturing industry is more pronounced than in other parts of the economy, inspiring hopes amongst a disillusioned public that this could have a knock on effect onto different sectors of the economy.
In what could be termed as a hangover from the financial crisis, wage growth has stagnated in real terms for years now, with data from the Office for National Statistics (ONS) for the second quarter showing that wages were lagging almost 3 times behind inflation.
However, fresh research from manufacturersí association, EEF, showed that pay rises at industrial firms are outstripping inflation by 2.6% in the first half of this year. As pay rises increase in the manufacturing sector, pay deferments and freezes are falling, depicting a contrasting image to the wider economy. ìManufacturing pay continues to run ahead of the wider economy with signs that the pressure on household budgets, at least for employees in industry, is starting to unwind,î said Lee Hopley, chief economist at EEF.
Although wage growth has been slowing now for years, the ONSí most recent findings showed that wage growth had fallen, by 0.2% in terms of average weekly earnings, for the first time since 2009. This was made all the more discomforting by the rising employment levels, and the growing disparity between company chiefs and their employees pay, with both factors indicating a surge in unfairly cheap labour, which impacts on householdsí ability to cope with rising bills and housing costs.
However, the report from EEF challenges this perspective, showing the appreciation, in monetary terms, employers in the manufacturing sector are showing their employees for assisting them through the turmoil which ensued following the 2008 financial crisis. Mr Hopley stated: ìAfter many challenging years, manufacturers are also now literally paying their employees back for their support to keep jobs and businesses going.
ìBusiness across the sector has clearly been on the up, but affordability will remain a key consideration in future pay deals as manufacturers grow in confidence that the recovery is secure.î Mr Hopley goes on to bemoan the lack of skilled workers available in the manufacturing sector, and notes that employers are reacting to this reality by paying their trusted, experienced staff top dollar for their services, in the hope that this will help retain said workers whilst enticing new accomplished additions.
Potential Impact on Interest Rates:
This positive outlook on wage growth will be of interest to the BoEís Monetary Policy Committee, which will decide the timing of the much anticipated interest rate rise from its current low level.
Mark Carney recently noted that wage growth across the economy had been inadequate, especially when falling unemployment is taken into consideration. However, the MPC failed to show unanimity over their decision to not raise interest rates, with 2 members voting yes, due to their belief that improvements in the labour market could increase inflationary forces, sparking wage rises in line with inflation.
Perturbingly, Ben Broadbent, deputy governor at the BoE, said over the weekend that low wage growth could become an irrefutable facet of the economy over the coming years, yielding a period of ìlow productivity growthî.
No indication has yet been given to the exact timing of an interest rate hike, but business secretary Vince Cable has asserted that although we are entering a period of economic growth, the UK is still on ëlife supportí in economic terms.
The Consumer Price Index fell by 0.3% in July, to 1.6%.