Real wages are finally growing, but productivity is suffering again

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Wages in manufacturing have accelerated

Together with January, April is well-known to be an important month for pay settlements. The new fiscal year is starting and companies are usually keen to discuss any change in wages for the year ahead.

After a year of inflation higher than normal and very good results in terms of output and turnover, manufacturers agreed to increase wages on average by 2.6%. This is the highest April pay rise since 2008 and it’s also higher than the 2.3% seen in January, the other important date for pay settlements.

Broadly in line with our survey, ONS data also show that regular manufacturing wages grew by 2.6% in the three months to March.

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We are in the money…

On Tuesday, the ONS also published official statistics for the whole economy. Nominal regular wages showed an annual growth of 2.9% in the three months to March (2.6% when bonuses are included). This translates into a real growth rate since inflation is moving downwards toward the 2% Bank of England target.

After a long period of negative wage growth this is clearly great news even if we are still far away from the big increases of 2015-16, which were largely due to the long period of “lowflation”.

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Strong labour market and weak GDP mean just one thing…

Yes, you are right: weak productivity.

After two quarters of extremely positive growth, in the first quarter of 2018 productivity contracted by 0.5% compared to the previous quarter. The poor performance is related to the weak GDP data (as we discussed here), and a super-strong labour market which continues to amaze. Unemployment is stable at 4.2% and employment is at all-time high at 75.3%.

As we said in our productivity report, the UK should be proud to have such a strong labour market and of being able to leave almost no one out of job. However, this situation means that there is almost no slack in the job market and that the only way to achieve sustainable and sustained growth is through productivity gains. In order to prosper in the medium and long term, we need to learn how to do more with less.

And you know, if you are actually able to do more with less...your employer will be happy to give you a nice pay rise! 

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