- Bank of England’s Haldane says that pay growth and productivity growth are set to rebound; Pay and productivity have been two of the biggest issues impacting the UK economy in recent years; Haldane sought to portray any interest rate hike in the near future as “a good news story” rather than a “source of fear or trepidation”; He spoke ahead of the Bank of England’s 20th Anniversary Conference.
LONDON – The Bank of England’s Chief Economist Andy Haldane believes that Britain may be “nearing the end of the tunnel” when it comes to two of the biggest problems that have blighted the economy in recent years.
Speaking in an interview with Sky News, Haldane said that the worst may be over for the twin pillars of pay growth and productivity growth, both of which have been consistently weak in recent years.
“I think the signs are more encouraging on the pay front than they have been for some little while,” Haldane told Sky.
“I think the key to unlocking pay will be signs of improvement in the economy’s productive potential. Higher pay needs to be paid for… so I hope we might be nearing the end of the tunnel on both pay and productivity.”
Pay under pressure from the gig economy
Pay in the UK has remained subdued for a significant period of time. A combination of factors, including the rise of the so-called gig economy, are making pay increases difficult to come by. Those on so-called zero-hours contracts, for example, may find it tough to get a pay rise when their boss is not even obliged to even give them any hours of work.
This is exacerbated by the fact that workers in the 21st century are far less likely to be part of a union and as a result do not have the same power to force employers hands as they had during the latter half of the 20th century.
There has also been another big, more recent shift, a shift towards the so-called “gig economy,” a class of workers who are technically self-employed and paid per “gig,” typically working in service-style roles like deliveries and taxi-driving, often without set hours and with work assigned via a smartphone app.
Gig economy workers tend to have a much greater deal of flexibility in the way they work, but in turn, sacrifice many of the protections they would receive if they were to have formal employee status.
Boosting wages for gig economy workers can also be hard. Companies in the gig economy like Uber, Deliveroo, and Hassle set their rates centrally and, given that workers are effectively their own bosses, asking for a raise is virtually impossible.
Wage pressures remain so weak that pay is growing more slowly than prices are rising, creating a situation where the pay packet of the average Brit is actively shrinking.
Inflation – which pre-referendum had ticked along at less than half of 1% – has jumped thanks to the pound’s depreciation against both the dollar and the euro after the vote. At the last reading, inflation was 2.9%, but many expect it to pass above 3% before the end of the year.
By contrast, wage growth was just 2.1% when measured as part of the Office for National Statistics’ latest job market figures released in September.
A “good news story”
Alongside his comments on pay, Haldane addressed discussions of a potential hike in interest rates in the coming months. At its September meeting, the Bank of England effectively telegraphed a hike from 0.25% to 0.5% by the end of the year. Haldane reiterated those sentiments, adding that he believes any hike should be seen as a positive sign for the economy.
“In the September minutes, in particular, a majority of the committee – of which I am one – said that we could be nearing the point where a reduction in some degree of monetary stimulus might be warranted in the coming months,” he said.
“And let’s be clear here: for me that would be a good news story. This would be interest rates getting back to normal, even if the new normal is different to the old normal.
“This would be a sign of the economy healing, and therefore adjusting to that healing process. So rather than being a source of fear or trepidation, this ought to be a good news story about the economy proving resilient.”