Photographer: Chris Ratcliffe/Bloomberg

Meager Pay Growth Adds to Reasons to Expect U.K. Consumer Squeeze

Employers say the average pay settlement will drop this year, even as inflation accelerates.

U.K. consumers are going to be squeezed this year, according to the people who pay their wages.

While inflation is fast accelerating thanks to higher fuel prices and a weaker pound, pay growth is dwindling. According to an annual survey published by the Bank of England, the average pay settlement will drop to 2.2 percent this year from 2.7 percent in 2016. In addition, the number of awards between 3 and 4 percent is "expected to fall significantly." 

The annual survey by the BOE's regional agents across the U.K. — running for almost two decades — covered 341 companies employing more than half a million people. In summary:

"Settlements were expected to moderate in all sectors, with the largest decline anticipated in consumer services."

In its Inflation Report this month, the BOE forecast that inflation will accelerate through 2017 and peak at close to 3 percent in the first half of 2018.

It also projected annual average earnings growth of 3 percent and 3.25 percent this year and next, which would allow for some — albeit very modest — real income growth. But the pay survey suggests different, with real incomes falling again starting this year.

 

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