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UK pay rises to stay low despite economic recovery

Pay rises will remain subdued over the next year, despite Britain’s robust recovery and complaints from business leaders of acute skills shortages, according to a survey of employers.

Wages will increase by an average of 2% over the next year as UK employers continue to recruit the workers they need without significantly hiking wages.

The survey by the Chartered Institute of Personnel & Development found that the number of applicants per vacancy remained steady over the past year, with average applications for jobs running at 25 for each low-skilled role, 15 for medium-skilled roles and eight for highly skilled roles.

The CIPD said this response showed employers still had the whip hand in the labour market, with most businesses seeing a steady flow of suitable candidates when they advertise jobs.

Only a limited number of industries were hit by skills shortages and many of those were putting more resources into training their existing staff or employing apprentices to fill the gaps.

Gerwyn Davies, a labour market analyst at the CIPD, said: “It seems that armageddon warnings about the UK facing a skills shortage crisis understate the ability of many employers to ease their recruitment problems.

“Many have heeded previous warnings of a tightening jobs market by providing more job opportunities for young people, including through apprenticeships, while up-skilling the existing workforce. At the same time, others are using migrant workers to strengthen their defence against a tightening labour market.”

The number of organisations reporting at least one hard-to-fill vacancy increased from 44% to 49%. The most acute problems were confined to the manufacturing and production sectors, however, which included industries such as construction and utilities as well as the finance and retail sectors.

The likelihood of UK employers offering low wage rises for another year will be noted by Bank of England policymakers. They have indicated that they are unwilling to raise interest rates without strong signs that higher wages are pushing up prices in the shops.

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Last week Mark Carney, the Bank of England governor, said inflationary pressures remained weak and hinted that interest rates were unlikely to rise until late in 2016.

The prospect of muted pay rises come despite George Osborne setting a new minimum wage of £7.20 an hour from next April, up 50p from the current minimum wage of £6.70. This measure is expected to lift the earnings of only a small section – between 2.5m and 3m – of Britain’s 30m workforce.

According to the chair of the Low Pay Commission, David Norgrove, it will also lead to more than the predicted 60,000 redundancies across the economy as employers seek to reduce costs. In a separate report, the CBI warned that Britain’s recovery was unlikely to gather significant momentum, given the gloomier outlook for global growth and the likely blow to demand for UK manufactured exports.

The business lobby group cut its forecast for GDP growth this year to 2.4% from 2.6%. It expects the UK economy to grow 2.6% next year, a cut from from its previous estimate of 2.8%. Publishing its updated outlook before the CBI annual conference, it said the UK was still looking “resilient in the face of global headwinds”, but factory output was likely to stagnate.

The CBI’s director-general, John Cridland, said: “Manufacturers are enduring tougher conditions, as a persistently strong pound is hamstringing our export competitiveness, alongside dampened global growth. But our domestic story is strong and overall we are now in a phase of stable but solid economic growth.”

The CBI also pushed back its forecasts for a rate hike from the Bank of England. It now expects the first hike in more than eight years to come in the second quarter of 2016 – later than its previous forecast, which had predicted a rise in the first quarter. A survey of businesses by the accountants BDO also heightened concerns that manufacturers face a hard slog next year, in contrast to the more buoyant services sector.

BDO’s optimism index, which predicts growth six months ahead, remained above its long-term trend in October at 101.9, indicating that UK businesses expect their order books to continue to grow strongly. However, this reading masked “serious concerns among manufacturers”, the firm said.

The index for manufacturing suffered a fall to 90.2, while service sector businesses expected rapid growth, with optimism scores well above the trend at 104.2.

“It seems that the UK’s makers fear a sudden contraction as we go into 2016, even if trading remains strong today,” the report said. “These trends could see the UK economy become even more unbalanced as sluggish manufacturing growth becomes entrenched and the UK becomes even more reliant on the service sector for growth.”

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