Wage rises due next year, Bank of England predicts

Nick Elvin

Wages should start rising in real terms from the middle of next year, according to the Governor of Bank of England, Mark Carney.

Addressing the TUC’s annual conference in Liverpool on Tuesday, Mr Carney said actual wage growth, at just 0.6% since a year ago excluding bonuses, was “very weak”, and adjusted for inflation, had fallen by about a tenth since the onset of the recession, a drop not seen since the early 1920s.

However, in terms of unemployment rate, he said Britain had fared better than many other European nations during the recession, putting the country in a good position for further improvement. This, he said, was due in part to many workers taking pay cuts, or accepting shorter hours, rather than losing their jobs.

“There are now over one million more people in work in the UK than at the start of the crisis,” Mr Carney said. “Total hours worked are some 4% above their pre-crisis level. That exceptional employment performance has come at a cost, however: wage growth has been very weak.”

He said some indicators, such as job-to-job flow figures, and surveys of pay growth, offered “encouraging evidence of better wage prospects for those changing or finding new jobs”.

He added: “The Bank’s latest forecast expects real wage growth to resume around the middle of next year and then to accelerate as the unemployment rate continues to fall to around 5½% over the next three years. By the end of our forecast, we see 4% nominal pay growth on average across the economy.”

Mr Carney said Britain’s workers had borne many of the consequences of a “calamitous” recession, and he set out what could be done to ensure they “get the pay rise they deserve”.

“Our job is to ensure the economy achieves its potential and to maintain price and financial stability, for sustainable growth in jobs and incomes,” he told the conference.

“But monetary policy cannot do it alone. Others – including trade unions, government and businesses – will determine the potential of this economy. You will ultimately determine the size of Britain’s pay rise.

“Those in work need to be able to seize new job opportunities in a world where technology and globalisation cause labour markets to shift rapidly. Skill levels need to be raised continually. That is of course first and foremost about education. But crucially it also means access to lifelong learning, both on and off the job, available to all.”