Weakening pay growth forecast for 2017 by Bank of England agents' survey

Average pay growth of 2.7 per cent in 2016 is expected to slow to 2.2 per cent in 2016, while inflation rises to 2.7 per cent.

Pay growth for consumer services workers, such as hotel receptionists, is expected to be held down in 2017 (AFP)

The network of regional agents working for the Bank of England have reported that employers plan to scale down pay awards this year, despite the expected jump in inflation due to the plunging pound.

According to the agents’ latest survey average pay growth of 2.7 per cent in 2016 is expected to slow sharply to 2.2 per cent in 2016.

It also reported that that number of pay awards worth between 3 and 4 per cent (which were the average before the financial crisis) are expected by employers to fall “significantly”.

Pay pain coming

The findings are further evidence that real incomes are set to be squeezed this year, which is expected to crush disposable incomes.

Consumer price inflation currently stands at 1.6 per cent and is expected to reach 2.7 per cent by the Bank of England by the end of 2017, largely due to the 12 per cent slump in sterling since last June's Brexit vote.

The agents reported that the pay clampdown would likely affect all sectors of the jobs market, but particularly consumer services.

They also said a slowdown in the rate of increase of the statutory minimum wage was a factor in the ability of firms to slow down wage growth.

The Bank of England said last week that it would be monitoring wage costs very closely for signs that its new forecast of the degree of labour market slack in the economy was incorrect.

An overshoot could prompt an increase in interest rates from their current historic low of 0.25 per cent.

But the Bank also forecast that consumers would carry on spending and supporting GDP growth this year by running down the aggregate household savings ratio to its lowest level since the early 1960s.

The Institute for Fiscal Studies estimated last year, based on the latest wage and inflation projections from the Office for Budget Responsibility, that real average wages could remain below their pre-recession levels until 2021, which would constitute the longest period of stagnation since the Second World War.