Hopes of bumper pay rises as the economy shrugs off the effect of the Brexit vote appear to be dashed by a Bank of England survey that predicts a decline in wages growth this year.
A report by the central bank’s regional agents found that far from strengthening in response to higher inflation, average pay settlements will decline from 2.7% to 2.2% this year.
The data contrasts with the Bank’s quarterly inflation report last week that showed wages growth increasing to 3.5% by the end of the year.
The agents, who visited about 700 businesses and received pay information from 341, said employers’ labour costs were likely to rise after the introduction from April of the government’s apprenticeship levy.
Further rises in minimum wage rates and an expansion of the government’s occupational pension plan to small employers would also push up the average cost of employment.
Wages were expected to remain subdued, possibly to offset the extra costs imposed on employers.
Based in 12 offices across the UK, the agents are described by the Bank as its “eyes, ears and voice” in the regions, “collecting information about trends and developments and explaining the Bank’s policy decisions to local businesses, industry and labour groups”.
Agents’ views have gained a higher profile inside Threadneedle Street in recent months after a series of attacks by senior politicians and Brexit campaigners accusing central bank staff of “ivory tower” policymaking.
Critics have accused the Bank governor, Mark Carney, and the nine-member monetary policy committee (MPC) of being too pessimistic in their judgment on the impact of the referendum vote.
They have also been criticised for overly optimistic return of high wages growth and the need for interest rate increases to combat an overheating economy.
The agents’ report said there would be higher pay for staff in industries with skill shortages, but rising labour costs “would be unlikely to be reflected in higher pay settlements”.
It said: “Indeed, the average pay settlement was expected to ease in 2017 to 2.2% from 2.7% in 2016, with the number of pay awards between 3% and 4% expected to fall significantly. Settlements were expected to moderate in all sectors, with the largest decline anticipated in consumer services, where some companies had made pay awards in 2016 that were beyond those strictly necessary to meet the national living wage at that time.”
A section of the inflation report discussed the likely reasons for the failure of wages to soar since the 2008 financial crash as forecasters expected. It relied heavily on the agents report when it said “some degree of slack in the economy and only modest productivity growth are projected to keep wage growth relatively subdued in the near term”.
Nevertheless, it projected a liftoff in wages growth in the second half of the year and through 2018.
A spokeswoman for the Bank said the MPC, which sets interest rates, included the agents’ report as one of several measures of potential wages growth.