COMPANIES expect average pay settlements to increase to 3.1 per cent in 2018, from 2.6 per cent last year, a survey by Bank of England agents around the UK has revealed.

The signal that pay growth is set to accelerate was viewed by economists as likely to be viewed by the Bank’s Monetary Policy Committee as supportive of its more hawkish tone at its meeting last week, at which it held UK base rates at 0.5 per cent. A surge in annual consumer prices index inflation, fuelled by sterling’s post-Brexit vote weakness, has resulted in a renewed fall in real pay.

Howard Archer, chief economic adviser to the EY ITEM Club think-tank, said: “Expectations that the Bank of England will raise interest rates in May will likely be fuelled by their regional agents reporting a pick-up in companies’ expected average pay settlements to 3.1 per cent in 2018 and rising unit labour cost growth.”

As well as highlighting expectations of an acceleration of pay growth, the Bank agents’ summary of business conditions declares: “Total labour cost growth continued to pick up, largely due to a combination of recruitment difficulties, the rising cost of living and the increase in the National Living Wage.”

The agents’ report notes the 2017 outturn for average pay settlements was “higher than the 2.2 per cent that had been expected in last year’s survey, reflecting larger settlements across a broad range of sectors”.

It adds that the expected increases in pay settlements in 2018 are “also expected to be broad-based”. The report notes that only the construction sector expects pay settlements in 2018 to be the same as in 2017.