UK WORKERS are set to see their first real pay rise since 2007 with wages expected to rise by 1.8% this year, according to EY’s Item Club.
The latest report from the economic forecasters found that real wages – which exclude the impact of inflation – will increase by between 1% and 2% over the coming four years, having fallen by 8% since 2008.
“The recent tentative pickup in wages should become more established, as the labour market tightens and employees gain more opportunities to move jobs. We also expect a modest recovery in productivity, helping companies to pay for wage rises,” the report said.
However, there will be no return to the annual rates of average earnings growth of around 4% to 5% seen in the years running up to the financial crisis. Unemployment is expected to return to pre-crisis rate of just over 5% by 2018.
The dynamics in the market will also impact operating models, the report said. Corporates that have been able to use relatively cheap labour to help maintain margins and to minimise capital investment could find margins could come under pressure.
“There is also an increased risk of skill shortages and battles for talent in certain parts of the labour market. Now is the time to review the operating model,” the report added.
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