UK salaries rising for skills in short supply

After six years of falling real wages, data published on Friday suggest that advertised salaries are rising quickly in the UK for workers with scarce skills, but across-the-board pay settlements remain subdued.

Weak pay growth is a flashpoint in the election debate over whether the economic recovery has benefited workers. The future path of wage rises is also critical for the Bank of England as it considers how soon to raise interest rates from record lows.

A survey of 400 recruitment companies by the Recruitment and Employment Confederation suggests that advertised salaries are rising swiftly, particularly for workers whose skills are in short supply, such as IT and healthcare and among construction professionals.

According to the survey, starting salaries for people placed in permanent jobs rose in March at the fastest pace since September, while recruiters reported they were finding it increasingly hard to fill vacancies.

At the same time, official data show more people are quitting their jobs and moving to new ones, a leading indicator for wage growth and an important sign the labour market is normalising.

However, data on across-the-board pay settlements paint a bleaker picture. In the three months to the end of February, the median pay award was worth just 2 per cent, according to the data provider XpertHR - half a percentage point below the median pay award a year earlier. Bernard Brown, the head of business services at the accountancy firm KPMG, said these trends could cause a two-tier pay market, with "a significant divide between highly paid new starters and current employees receiving subdued pay increases".

He added: "This dynamic will cause businesses problems in the long term as they struggle to keep hold of talented staff increasingly dissatisfied by their remuneration packages."

Average weekly earnings have risen faster than inflation for the past four months, according to official statistics, but that is more because inflation has plunged to zero than because of a strong pick-up in nominal wage growth. In the three months to January, regular pay was just 1.6 per cent higher than a year earlier. Before the 2008 financial crisis, average pay typically rose at about 4 per cent a year.

The BoE expects wage growth to accelerate to 3.5 per cent by the end of the year, but some economists think that forecast is too optimistic.

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