LONDON — British employers are struggling to recruit new staff and are offering higher wages in a small sign that the worst of the UK’s worryingly low wage growth in recent years could be coming to an end.
The Bank of England released its “Agents’ summary of business conditions” — a review of issues facing UK businesses — on Wednesday.
And it spends a bit of time analysing the conditions in Britain’s labour market, which has confounded all normal economic orthodoxy in recent years.
Unemployment in Britain is close to historic lows — 4.7% at the most recent reading — which, in normal circumstances, would mean that wages should be rising rapidly as employers try to attract talent from a smaller than normal pool of workers.
However, wage growth remains subdued, and in real terms — thanks to the inflation triggered by the devaluation of the pound since last summer’s Brexit vote — average wages are actually falling.
Several factors have driven that disconnect, including the drop in trade union participation by workers, the rise of the gig economy, and an increase in the prevalence of zero-hours contracts.
However, the Bank of England’s survey suggests that there may be light at the end of the tunnel, with agents reporting that they are increasing “the pay offered to new recruits or to key existing personnel,” to deal with a shortage of available workers.
“During April and May, the Bank’s Agents undertook a survey of business contacts to gauge whether labour markets were tightening, and to identify the tactical responses businesses were making to any staffing challenges,” the Bank of England said.
“Survey responses indicate increasing recruitment and retention difficulties — most acutely for key skills, but with increased challenges for all positions.”
The responses to any difficulty in recruiting staff were varied, but the most common response was to boost wages, something that could be a good sign for the labour market’s future.
“Respondents were also asked whether they had made changes as a result of any recruitment/retention challenges they faced,” the bank said.
“A small majority had made changes; of those, the most common response was to increase the pay offered to new recruits or to key existing personnel (Chart C). Such responses were common across all sectors, and were most frequently cited in construction.”
You can see Chart C below:
Obviously, the Bank of England’s survey isn’t suggesting that there is some magic bullet, rapid solution to the low wage growth that has plagued the country for years. Governor Mark Carney on Tuesday, for example, said that wage growth remained “anaemic.”
However, the signs are there that a recovery could be on its way.
The bank is largely pretty upbeat on the future prospects of wage growth, with Carney saying in May that he sees growth accelerating as 2017 progresses.
“We actually expect that the pace of wage growth is going to accelerate as this year progresses, and certainly into 2018/2019,” he said after the release of the bank’s May Inflation Report.
“This higher inflation that we’re experiencing now will come off in subsequent years, so real income growth, we expect, will return, and people will start moving ahead in the latter years of our forecasts.”
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