LONDON (Reuters) - Signs of a “new dawn” in British wage growth are growing after years of stagnation but the pick-up in pay is likely to be limited, the Bank of England’s chief economist, Andy Haldane, said on Wednesday.
Haldane contrasted the situation with a year ago, when he said there had been a number of false dawns on pay and repeated failings on the part of the BoE in forecasting higher pay.
Now, with the end of a government cap on public-sector pay rises and a steady rise in the average level of private-sector pay deals, pay growth was turning a corner.
“I think there is more compelling evidence of a new dawn breaking for pay growth, albeit with the light filtering through only slowly,” he said in a speech at a conference held by Britain’s ACAS labour dispute arbitration service.
British workers are earning less than they did 10 years ago - before the global financial crisis - when adjusted for inflation, and Haldane highlighted longer-term headwinds to pay if trends in automation and the dominance of big businesses intensified.
Haldane said the “limited and gradual” outlook for pay rises was being reflected in bets by investors that the central bank will raise interest rates by only about a quarter of a percentage point a year over the next three years.
The BoE pushed up borrowing costs for only the second time since the 2007-08 financial crisis in August, taking them to 0.75 percent from 0.5 percent.
The BoE forecasts pay growth including bonuses will rise to 3.25 percent by the end of next year, up from 2.9 percent in the most recent data, before hitting 3.5 percent by the end of 2020.
However, the BoE has often produced pay growth forecasts that were too high, which Haldane said was largely due to over-optimism about productivity and an underestimation of how much unemployment could fall without pushing up wages.
More recently, pay appeared to be rising in line with BoE forecasts.
But Haldane said in the longer term there was a risk of downward pressure on pay growth from reduced worker bargaining power, automation and less competition between businesses.
A 30-percentage-point fall in recent decades in the proportion of Britons in trade unions had probably reduced pay growth by around 0.75 percentage points a year.
If Britain reached U.S. levels of automation over the next decade, pay growth could be lowered by about 0.4 percentage points a year and U.S. levels of business concentration could reduce pay growth by 0.05 percentage points, Haldane said.
Britain’s government appointed Haldane on Monday to chair a committee looking at how to improve productivity.
Weak management appears a bigger problem in Britain than in other countries, Haldane said on Monday.
Editing by Mark Heinrich