Bosses expect pay squeeze to end

Monday 05 January 2015

Business leaders entered the new year with heightened concerns over the global economy and UK politics but expect to hike workers' wages above inflation during 2015, a report out today found.

Around 60% of leading chief financial officers (CFOs) said their firms faced "normal, high or very high levels of uncertainty", according to a Deloitte quarterly survey. This compares to a low of 49% among company finance heads nine months ago, though it is the same level as a year ago.

Fears over the general election, weakness in the eurozone and a possible referendum on the UK's membership of the EU were among the concerns for financial officers. There were also further UK-based worries about poor productivity, the possibility of a housing bubble and further cuts in spending. But finance directors were broadly positive on the domestic environment, according to the poll of 119 executives from FTSE 100 and FTSE 250 listed firms as well as other large private UK companies.

CFOs were upbeat that the long squeeze on real terms earnings would end, forecasting that wages at their firms would rise 2.9% in 2015, well ahead of an expected Consumer Price Index (CPI) inflation rate of 1.3% for 2015.

Pay rises have not been consistently ahead of inflation since 2008 though latest figures for the three months to October showed total pay increasing by 1.4%, nudging ahead of CPI.

Deloitte chief economist Ian Stewart said: "The central challenges facing the UK's largest companies as they enter 2015 are policy uncertainty at home and economic and geopolitical risks overseas. CFOs expect 2015 to be a year of investment and recovering real earnings in the UK. Corporate and consumer spending look set to lend the UK economy important support, suggesting the UK will post decent growth throughout 2015."

Meanwhile, a separate survey from Lloyds Bank found that business confidence had fallen from a record high six months ago though remained well above average.

Expectations for sales and orders suggested economic activity would continue to be solid but at a more modest pace for the first half of 2015, according to the Business in Britain poll of more than 1,500 firms.

Separate figures from EEF, the manufacturers' organisation, found that the number of firms who expect economic conditions to improve had nearly halved from 70% to 37%. The poll of 166 senior company executives found that 37% of manufacturers forecast the UK economy will improve this year, down from 70% 12 months ago.

Those expecting UK conditions to deteriorate rose from 5% a year ago to 17% and for 38%, global conditions looked likely to worsen, up from 5% at the start of 2014.

EEF chief executive Terry Scuoler said: "Manufacturers' confidence at the beginning of last year was very high - one year on and, while positive, it has very evidently eased back. The realities of 2014 have taken the edge off future forecasts and what we are now seeing as we head into 2015 is a far more muted outlook, tempered by a backdrop of difficulties in the EU and wider geo-political concerns."

It comes after figures last week showed growth in Britain's manufacturing sector slowed to a three-month low last month marking a dismal end to 2014, according to the closely-watched CIPS/Markit purchasing managers' index survey.

The report posted a worse than expected reading of 52.5 - where the 50 figure separates growth from contraction. It was a fall from November's reading of 53.3 and gave an average performance for the fourth quarter as a whole of 53, the weakest for a year-and-a-half.