A shortage of factory workers is starting to push up pay rates but wage rises in the services sector remain rooted at around 2%, according to the latest feedback from the Bank of England’s regional agents.
The central bank said its agents, which are based in offices across the country, found that shortages this month across the manufacturing sector were leading to a “slight increase in pay growth” that would take average rate of pay rises up by half a percent, from 2-3% this year to 2.5%-3.5% in 2018.
The report appeared to justify Threadneedle Street’s move last week to increase interest rates, which officials at the bank said was needed to dampen the inflationary effects of wage rises.
A survey of employers in October by the Recruitment and Employment Confederation chimed with the BoE report after it found firms were having to raise their pay offers to hire new staff.
The REC said the increase, the second quickest rise in wages since November 2015, followed a fall in unemployment to the lowest level in 40 years that had restricted the number of workers available to take up new positions. It warned that higher pay offers were also needed to counter a growing shortage of EU workers ahead of Brexit.
“We already know that EU workers are leaving because of the uncertainties they are facing right now,” said Kevin Green, REC’s chief executive. “We therefore need clarity around what future immigration systems will look like. Otherwise, the situation will get worse and employers will face even more staff shortages.”
Official data shows that in August net migration fell to its lowest level in three years, with more than half the drop caused by EU citizens leaving and fewer arriving since the Brexit vote.
The REC said its survey, conducted with the data firm IHS Markit, showed that the availability of permanent and temporary workers had continued to fall sharply in October.
However, shortages highlighted by recruitment agencies have yet to feed through into official pay figures, which show that average wages growth across all sectors remains muted.
Figures from the Office for National Statistics estimated that average weekly earnings in the three months to August rose by just over 2% a year, below the rate of inflation, which has hit 3%.
The BoE report also pointed to there probably being only modest investment in new equipment and processes by firms over the next two years due to the uncertain economic outlook. The agents said that while firms were overhauling and upgrading their IT systems, they were reluctant to commit resources to expanding production while the outcome of Brexit negotiations remained unclear.
The report said: “Expectations about future trading arrangements and other factors related to the United Kingdom’s decision to leave the European Union, such as concerns around the future availability of overseas labour, were also reported to be restraining investment.”
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