The squeeze on British households is set to worsen next year as companies crimp pay rises to among the lowest in Europe.
A survey of more than 22,000 companies around the world showed British firms predicting rises of just 2.5 per cent for next year — a drop of 0.5 per cent on last year’s forecast.
At that level, pay will not keep up with RPI inflation, potentially endangering the UK’s economic growth, which remains largely based on consumer spending and the rising property market.
The report comes as official data released today shows mixed signals over efforts to rebalance the economy away from consumer spending towards manufacturing and trade.
Across Europe, pay rises are expected to average 3.1 per cent next year, according to the survey from top five global management consultant Hay Group.
David Smith, a consultant at Hay, said: “It’s pleasing to see the recent economic growth figures but it’s clear that businesses are remaining cautious when it comes to setting pay.”
UK pay will also fail to keep up with the US, at 2.8 per cent, and Canada, at 2.7 per cent. Of the major European economies, Italy expects the biggest rises, at 3.3 per cent, with Austria and Germany close behind. However, struggling workers in the high-unemployment nations of Greece, Spain, Ireland and Portugal can expect rises of at most 1.1%.
Europe appears to be operating on a triple track, where so-called “emerging” countries like Ukraine (7.9 per cent), Russia (7.8 per cent) and Turkey (7.7 per cent) are likely to get the biggest pay rises.
Meanwhile, in the first snapshots of the UK’s recovery fortunes since the Autumn Statement, official data showed Britain’s “march of the makers” gaining ground, with industrial output up 0.4% in October and annual growth at its highest level since the end of 2010. Manufacturing also rose 0.4 per cent, although the sector remains nearly 10 per centbelow its pre-recession peak.
But the pound hit a two-year high against the dollar as traders bought sterling after upbeat recovery comments from Bank of England Governor Mark Carney.
A stronger pound will do little to narrow the UK’s goods trade gap with the rest of the world, which fell slightly from £10.1 billion to a higher than expected £9.7 billion in October.
Including the UK’s surplus in services, the nation’s overall trade gap remained unchanged at £2.6 billion in October.