The first EEF’s Pay Bulletin of the year has been published today.
Five takeaways from the January release (if you are an EEF member, here you can find the full publication).
Manufacturing wages are up
The 3-month average annual pay rise in the last quarter of the year was up by 2.3% compared to 2.1% registered in the previous quarter and to the overall 2.0% of 2017. Our result is in line with the latest ONS figures for November which see manufacturing regular pay rising at an annual rate of 2.4%.
Pay freezes and deferrals are up, however this might be just a seasonal phenomenon which may disappear next month with January’s release.
Whole economy wages are up as well
According to the ONS, whole economy earnings are up by 2.4% when regular pay is considered and 2.5% when bonuses are taken into account. This figure is in line with the previous releases, however it appears clear that an upward trend has materialised after the low 1.8% pay increase registered between February and April 2017.
However not as much as inflation…
A 2.4% increase appears to be a healthy one, but it is not so positive when inflation is taken into account. The latest data for December show that CPI is up by 3.0% after the peak registered in November 3.1%. When nominal pay is deflated by CPI, and so the real wage growth is computed, the figures turn out to be negative.
Since February 2017, UK real wages have started to crunch under a high level of inflation which is reducing the purchasing power of British consumers.
…which is going down, but not that much
We have probably passed the inflation peak which appeared to materialise in November (+3.1%), however the path to inflation normalisation is still a fairly long one. The Sterling devaluation effect, that hit import prices and that has largely caused the spike in CPI, is likely to have an effect across the next 2 years. However this should not be as strong as it was in 2017.
CPI should continue its downward trend and 2018 is forecast to end up with an average growth of 2.3%.
…Unless pay rises will be high enough to fix the broken Phillips curve.
Job vacancies are record high, unemployment record low, and tomorrow it’s GDP day
On the bright side, the UK labour market continues to be extremely solid. Employment rate is at 75.3% up from 74.5% compared to a year ago. This is the joint highest since records began in 1971.
Unemployment rate is stable at 4.3%, 0.5% better than a year ago.
Moreover employers still seem keen on hiring with 810,000 job vacancies of which 57,000 were in the manufacturing sector. However, according to the ONS, there are some big regional differences in vacancies which highlights how some areas are struggling to find locally the right skills needed.
Tomorrow the ONS will also publish its first GDP estimate for the last quarter of 2017. Estimates are for a 0.4% growth but it will be interesting to find out if the issues related to the Fortis pipeline in December had a large enough effect of the whole economy.