The outlook for the UK manufacturing sector, Brexit aside, is positive. Despite the UK economy losing momentum at the start of 2017, manufacturing activity has picked up as a result of better domestic prospects and an upturn in global markets.
Employment prospects have also remained fairly positive, with the sector adding 9,000 jobs to the UK economy in the first quarter of 2017. This was reflected in EEF's market-leading Manufacturing Outlook report, which can be accessed here. The report found that over the next 18 months growth prospects for the UK economy as a whole are likely to remain subdued. The depreciation in sterling exchange rate is still feeding through the economy but the weakness in wage growth is likely to persist.
EEF pay data suggests that pay growth, for manufacturing at least, is gathering momentum, albeit at a modest pace. The average pay settlement ticked up to 2.3% in the three months to May. Meanwhile, the share of pay freezes continued to drift down, reaching a 25-month low of 7% of settlements in the three months to May.
The introduction of the NLW did not trigger a vast number of pay increases for manufacturers – most were already paying their employees above the new rate – the main impact was ensuring compliance with the still overly complex calculation rules and to some extent maintaining wage differentials. This is in part due to the fact that manufacturers tend to pay a rate for a job, and not a rate based on age. Almost six in ten (59%) EEF members have told us that none of their workforce aged 25 and over had their pay increased in order to comply with the National Living Wage legislation in April 2016.
However, this is not to say that there will be no action required in response to a rising wage floor in our sector. Although our survey data also suggests that for the most part manufacturers have not had to make changes to comply with the NLW so far, we can already begin to see that this year, the target for the NLW to reach 60% of median earnings will mean more employers are need to make increases in pay to comply then when the NLW was first introduced in April 2016.
What then for future rises, both to the NLW and the NMW?
All employers need certainty – Brexit alone provides much uncertainty, so, predictable rises to the rates are a must. Employers also need to know what the future plan is for the NLW, post 2020, and what the direction of travel will be, and there is a strong case for making the rates simpler. Do we really need 5 different rates?
EEF’s full response, and answers to these questions, can be found below.