According to EEF’s latest Pay Bulletin, wages across the manufacturing sector are continuing to rise in the first major pay round of the year. But how does the profile of pay increases tally with expectations of an acceleration in earnings growth this year?
After what feels like years of pay restraint in the economy – a result of economic conditions, dwindling productivity and an increase in the size of the workforce – there are expectations that this will be the year of a bigger pay rise for the UK’s workers.
The Bank of England’s Inflation Report earlier this month included forecasts showing that they expected earnings growth to accelerate to 3.25% by the middle of this year. But last week’s official data on pay suggest that this growth will need to come from a standing start as total earnings growth was running at just under 2% at the end of 2015 (three months to December compared with a year ago).
Official statistics for manufacturing were weaker still, with total earnings (including the volatile bonus component) rising by 1.3% in the three months to December – the slowest pace of increase since last April.
First pay round of 2016
That was last year. January is a major bargaining period for many companies and the settlements agreed at the start of the year can set the pace for pay growth for the rest of the year. EEF’s Pay Bulletin provides one of the first data points on January settlement levels.
And as the chart below shows, wage growth in manufacturing didn’t get out of first gear in January.
The average settlement level across industry was 2% in the three months to January – exactly in line with the average through 2015. The month figure for January was slightly higher at 2.2% - bang in line with the average figure in January 2015.
The most common pay band was between 1.76 and 2% in the past three months – around a third of settlements fell within this range. Top end pay deals remain few and far between, with fewer than one in ten deals ending in a settlement above 3%. Pay freezes became a more prominent feature of EEF’s Pay Bulletin over the course of last year and, in the three months to January, one in six settlements resulted in no change in pay.
What we’ve seen over the past year or so is remarkable stability in pay deals – hence the extremely dull chart above. There are lots of reasons to be unsurprised by this. The persistence of low inflation and, expectations that the year ahead will bring more risks than opportunities, are contributing to the trend of modest pay increases across the sector.
In addition, manufacturers have been expressing some concerns about the pipeline of employment-related cost increases, such as the national living wage and the apprenticeship levy. Companies remain cautious in balancing the need to retain skills and reward business improvements while avoiding locking themselves into higher payroll costs.
From where we sit at the moment, there is little to suggest that we’re in for a tranche of pay negotiations that look substantially more generous than this in the months ahead. So, if there are expectations that total earnings across the economy are about to head a whole lot higher, it doesn’t look like industry will be making a big contribution to moving the dial in that direction.
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If you're an EEF member, you can find out more pay information on our website.