MNI INTERVIEW: UK Pay Deals Slow From Three-Decade Highs

UK pay increases slowed markedly in the three months to January as early 2024 deals come in below recent levels, the head of a leading pay survey said, reporting findings which will boost hopes earnings growth will soon moderate to a pace that will make the Bank of England more comfortable in cutting Bank Rate this year.

“There are signs that the 6% headline pay award recorded during 2023 will not be matched in 2024 pay reviews," Sheila Attwood of XpertHR told MNI, although she noted that there were still some inflation-busting settlements. "Around half of employee groups are receiving settlements worth less than their previous award.”

But, even as the XpertHR headline reading showed pay increases slowing to a year-on-year 5.1% to the end of January versus the 6% settlements recorded in 11 out of the 12 rolling three-month periods of last year, Attwood noted that they remain historically high after a period of steep rises in the cost of living.

“While the median has fallen, it is still elevated by historical standards, with pay awards having not been consistently at this level since 1991," she said.

BANK CONCERNS

While the Bank of England has observed signs of labour market easing, policy makers remain concerned that wages growth is not slowing as quickly as hoped. Deputy Governor Ben Broadbent told the Treasury Select Committee on Tuesday that labour market data is key in deciding policy, while independent Monetary Policy Committee member Megan Greene said she needed to see a continuation of current trends to wage disinflation to justify a cut in interest rates. (See MNI BOE WATCH: BOE Holds, Hiking Bias Removed From Statement)

The most dovish MPC member, Swati Dhingra, speaks at an MNI Connect event later on Wednesday.

INFLATION-BUSTING

"There are still some inflation-busting deals being made, with around one-fifth of reviews worth at least 7%," Attwood said. "As inflation falls, our headline measure now sits above both RPI and CPI inflation," she noted, underlining the boost to real earnings. (see MNI INTERVIEW: Bright Spots In UK Growth Outlook-ONS's Fitzner)

But companies may be reaching their limits after providing hefty pay increases in recent years, Attwood said.

“The financial pressure from high inflation levels and elevated pay awards budgets in 2023 may mean that organisations will be limiting their budgets in 2024 in response," she said. "For deals coming into effect in January 2024, we have already recorded a media pay settlement of 5% -- slightly lower than our headline figures for the current rolling quarter.”