August 10, 2014 / 8:21 AM / 3 years ago

UK truckers busy as recovery builds, but pay still in the slow lane

* 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 (Reuters) - 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 30 years.

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 bonus payments.

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.”


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 in 2015.

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 said. ($1 = 0.5939 British pound) (Writing by William Schomberg; Editing by Will Waterman)

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