* UK economy back to pre-crisis level, wages still below
* BoE looks set to cut pay growth forecasts next week
* Slow wages growth a political problem for government
* Also complicates BoE's judgement on interest rates
By William Schomberg and Andy Bruce
LONDON, Aug 10 Truck drivers in the Midlands
region of England have not been this busy for six years, but
there's little sign of it in their pockets. It's a theme
repeated across the country, as workers' pay has failed to
reflect Britain's surprisingly strong economic recovery.
"There is an absolutely huge shortage of drivers in the
Midlands," said Neil Renwick, 46, a self-employed driver of
44-tonne vehicles who has been crisscrossing Britain for nearly
He said he was getting 10 notifications of work each day as
retailers, which use the Midlands as their distribution base,
try to keep up with rising demand in one of the world's
fastest-growing rich-world economies.
"But it's very difficult to get your wages up because
everyone is cutting each other's throats for the work," Renwick
said as he neared home in Leicester after a day on the roads.
The best rate he can find of 13 pounds ($22) an hour is
about the same he was earning 10 years ago.
"I can't see my rate going up for the next year and a half
or two years to be honest," Renwick said. "If I charge too much,
I'm not going to get the work."
After years in the doldrums following a severe 2008-09
recession, Britain's economy recently clawed its way back to
where it was before the financial crisis. This year it is likely
to grow more than 3 percent and by almost as much in 2015.
But stagnant wages have so far confounded forecasts that
this year would see the start of a turnaround in living
standards - a phenomenon that may be decisive in delaying
interest rate hikes by the Bank of England.
Real wages are still about 6 percent below their 2009 level,
according to the National Institute of Social and Economic
Research, which does not expect the lost ground to be recovered
until around 2018.
It's not just in Britain that wages have been weak. U.S.
wages rose by 2 percent over the past year, a touch less than
inflation. German workers endured a decade of wage restraint
before getting above-average pay hikes in the past year, and
Germany's central bank has taken the highly unusual step of
calling for higher wage settlements.
But in Britain, pay has been particularly stubborn, giving
Prime Minister David Cameron a problem ahead of a national
election in May next year.
Late last year, the opposition Labour party briefly toned
down its criticism of falling living standards - central to its
claim that the recovery is not helping ordinary Britons -
because it was sure that wages were finally about to rise.
In fact, average weekly earnings - the most widely watched
measure of pay - did not grow at all in cash terms between
January and May, the latest month for which data is available.
Data this week could show earnings actually fell in the
April-June period, partly because a cut in income taxes last
year had distorted the comparison by changing the timing of
In the face of such weak numbers, the Bank of England looks
set to revise down its forecasts for pay growth on Wednesday,
raising fresh questions about when it will start to raise
record-low interest rates.
At the finance ministry, officials point out that weak pay
growth has been partly offset by growing tax-free allowances for
earners. They also say different, private sector surveys might
paint a more accurate picture than the official numbers.
Those surveys have suggested that earnings are picking up
for some workers, especially those with skills in short supply
in areas such as engineering, construction and catering.
"We've got clients down on the south coast of England who
are asking for chefs to move from Scotland, from Wales, from
Ireland, from northern England," said Fraser McLeod, managing
director of recruitment firm Blue Arrow.
That kind of scramble for talent led to the biggest increase
in almost 17 years in starting salaries for new staff in June,
and almost as large a rise in July, according to the Recruitment
and Employment Confederation (REC).
Growth like that would normally translate into average pay
growth among all workers of about 4 percent a year, but this
time the link has broken down, said Samuel Tombs, an economist
at consultancy Capital Economics.
Kevin Green, REC's chief executive, is making no predictions
for when the strength in starting salaries will be seen in the
broader earnings figures.
"Historically there has been a lag in previous recessions,"
Green said. "But this one seems to be more pronounced."
BANK OF ENGLAND ON WAGE WATCH
It's not just workers who are anxious to know when their pay
will start to rise.
The Bank of England is increasingly focused on earnings
growth as it weighs up whether the British economy is strong
enough to cope with an interest rate hike.
It said as recently as May that average weekly earnings
would grow by 2.5 percent in 2014, a figure that now looks too
optimistic and is likely to be lowered on Wednesday when the BoE
publishes its latest projections for the economy.
A Reuters poll published on Friday showed economists expect
earnings to rise 1.4 percent this year, followed by 2.9 percent
Yet the BoE's policymakers are increasingly split over the
risks that wage pressures might push up inflation soon.
Some at the Bank think the slow pay growth is little more
than an unusually slow response to the sharp fall in British
unemployment and that the record number of people in work could
mean the labour market is about to heat up.
Others say there has been a major change in the labour
market that means more people will be looking for work and a
long-awaited recovery in the productivity of British workers
will finally materialise, easing inflation risks.
A former BoE rate-setter urged the Bank not to try to snuff
out inflationary pressures just as they start to build.
"If we raise rates prematurely and abort a recovery, the
costs ... are much higher than the costs of waiting just a
little bit and seeing tangible signs of wages picking up from
very low levels," said Sushil Wadhwani.
For Britain's truck drivers, at least, there are some hints
that wages will grow later this year.
Michael Cooper, a specialist recruiter, said an existing
shortfall in drivers was likely to get worse from September.
That is when retailers start to transport more goods ahead
of the end-of-year holiday season and when new training
requirements kick in, possibly preventing some drivers from
taking to the roads or prompting others to retire.
Rates for drivers who are now on about 9 pounds an hour were
likely to go up by one or two pounds and possibly by as much as
five, said Cooper, a director at The Best Connection Group, one
of the largest suppliers of temporary drivers in Britain.
"I can't see rates of pay going anywhere other than up," he
($1 = 0.5939 British pound)
(Writing by William Schomberg; Editing by Will Waterman)