A long sustained period of high inflation has finally pushed wages up
ONS figures for the three months to December show an annual nominal increase of 2.5% for regular pay in the whole economy and a 2.7% increase for the manufacturing sector. These are the highest increases since December and August 2016 respectively. Despite this growth, inflation was 3% in December, so real wages are still in negative territory.
The EEF bulletin is showing the same trend
After a three-month average annual growth of 2.3% registered in December, our Pay Bulletin has registered a 2.4% wage increase in the three months to January. The first month of the year show a 2.5% increase when the single month is considered and it also shows a deep decrease in the number of deferrals and pay freezes. As we suggested last month, several employers were waiting for the start of the year to increase wages.
When talking about wages, manufacturers put internal performances at the top of the list
This month we asked what are the most important factors considered when determining a pay increase. The vast majority of respondents indicated “company performance” as the top factor driving the rise. However, inflation came in second and was selected by two thirds of the respondents when no limitations were in place and by one third when the limit was two answers.
A second question asked was about employer approach to pay reviews and it appears that a very small minority relates wage raises exclusively to individual performances. For the most the approach is on a company-wide scale or a mix of company-scale and individual performance.
Unemployment slightly up and job vacancies still raising
For the first time since August 2016, the unemployment rate increased. It is now 4.4% up from 4.3%. However looking carefully at the data, the increase in the number of unemployed people is for the most related to inactives which have moved to the active side of the working population.
Job vacancy continues to break records. There are currently 823,000 jobs on the market waiting to be filled.
Productivity is up again, but…
Citing what Martin Wolf said during our EEF's Conference: “We won’t be economist, if we were not saying BUT “.
Productivity has been on the rise for the last two quarters with two strong performances, however a lot of this growth is coming from the denominator.
As the graph shows a notable reduction in hours worked boosted productivity. This may actually be just a temporary effect, so even if this improvement is good news, we should wait more than two quarters of (provisional) data to make assumptions on a revived productivity performance and the possibility that this will boost wages even further.