Modest real-wage growth on cards? CIPD assesses 2015’s prospects

Mark Beatson, chief economist at the Chartered Institute for Personnel and Development (CIPD), has issued his annual employment outlook for the UK in 2015.

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Based on evidence collected from the professional body for HR and people development’s surveys, and data already in the public domain from government department and agencies, Labour Market Predictions for 2015 concludes that while the UK labour market and economy will continue to expand, any real wage increase will not be evident until 2016 and that poor UK productivity remains an urgent issue, which business, goverment and policymakers needs to address if growth is to be sustained.Predictions for 2015 from the CIPD’s analysis include:
  • Employment may grow by up to half a million in 2015, slightly more than the OBR forecast, due to more migrant workers seeking work, older workers looking to stay in work and people leaving benefits and going into jobs under the Welfare to Work programme.
  • Economic growth of around 2.4% is expected in 2015, slightly lower than in 2014 (a slightly more modest figure than those projected by the European Commission, OECD and IMF).
  • Wage growth is likely to remain in the 1–2 per cent range for most, or all, of 2015. Although low inflation means average earnings may increase slightly in real terms, no significant increase in wage growth can be expected until 2016, and even then, “it is not guaranteed,” warns the report.
The analysis also concludes that productivity needs to form the core of economic policy and employers need to raise their productivity – including developing their workforce – before skills shortages mount.Highlighting that productivity has failed to keep pace with economic and labour market growth, Mark Beatson notes that, “It is not unusual for productivity to fall in the early stages of a recession. What has been unusual is the weak response since output started growing again.“Average productivity fell during 2011 and 2012 and growth since then has been modest, meaning that output per hour worked is still slightly below its pre-recession level. This is why economists talk of a ‘productivity puzzle’.”Beatson concludes that the UK’s continued favourable outlook remains vulnerable to developments in Europe, and that the UK’s productivity puzzle is an urgent issue for policymakers and businesses if growth is to be sustained.“By historic standards 2014 has been a year of reasonable growth, but there are still some very significant challenges that the government needs to address around productivity.“We said at the start of 2014 that productivity needed to be at the top of the agenda for government and the same is true for this year.“As a country, we are still producing less value today than before the recession, and the years preceding that. We need a massive step-change as without growth in productivity, we are unlikely to see real earnings grow for some time.”The wage growth recovery predicted by the CIPD echoes sentiments by British business leaders on the UK’s economic outlook for 2015. Alongside uncertainty due to May General Election and geopolitical risk, senior managers anticipate this year to see investment and real earnings growth, according to surveys.Recent articles you may also be interested in:Autumn statement response: productivity conundrum 'greatest challenge'Unemployment falls again as wages overtake inflationRecruitment grows, but so does skills shortage

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