UK pay hikes ‘to hold at 2%’
British consumer spending dipped last month and few employers plan to offer bigger pay rises, according to economic surveys that suggest future growth is likely to remain modest.
Last week, official figures showed growth sped up in the three months to June, after an unusually snowy start to the year, but a lacklustre, year-on-year growth rate prompted finance minister, Philip Hammond, to blame Brexit uncertainty.
Consumer-spending figures from payment-card company, Visa, suggest the third-quarter got off to a soft start, with July spending down 0.9%, in inflation-adjusted terms, as only bars, restaurants, and supermarkets gained from scorching weather and the World Cup. “Household budgets are stretched,” Visa’s chief commercial officer, Mark Antipof, said, highlighting August’s rise in Bank of England interest rates and costs for families at the start of the new school year. “Retailers had a difficult time in early 2018, and while there was some respite in May and June, July’s fall in spending is concerning,” he added.
The British Retail Consortium trade body showed a 0.8% annual drop in the number of people visiting shops last month. Visa’s figures contrast with those from Barclaycard last week, which showed a continuation of robust, 5% spending growth in July, albeit unadjusted for inflation. Economists polled by Reuters expect official retail sales data next week — which is adjusted for inflation and covers a narrower range of spending than Visa data — to show 3% sales growth. British households have been squeezed by inflation, which has been running faster than pay growth for most of the time since they voted for Brexit in June, 2016. That caused the pound to tumble, pushing up the cost of imported goods.
The Bank of England slightly scaled back its forecasts for pay growth earlier this month, though outgoing Monetary Policy Committee member, Ian McCafferty, said pay growth might approach 4% next year. However, human resources staff at major companies do not expect basic pay rates to be raised at anything near this rate over the coming year, according to a quarterly survey by the Chartered Institute of Personnel and Development (CIPD).
Median pay deals, over the next year, are expected to hold, at 2%, where they have been since late 2017, according to the poll of 2,001 senior HR staff. “Downward pressure of persistently weak productivity growth is dominating any upward pressure on pay from labour and skills shortages,” CIPD’s Gerwyn Davies said.
