After a surprisingly strong year in pay growth, the economic environment looks more uncertain as we head into 2020. Average UK salaries increased by up to 3.9% in 2019, eclipsing the predicted 3% growth rates that were suggested at the end of 2018. Why was this? The sustained job creation in 2019 surprised observers. The smart money suggested that Brexit uncertainty, the ongoing US/China trade dispute and the general slowdown of the world economy would hit UK jobs. However, this didn’t prove to be the case as the below graph from the ONS demonstrates:
Will demand by maintained?
The below graph demonstrates that the drop in unemployment has levelled off and is increasing slightly from month to month
So how will this affect salaries?
Supply and demand and salary increases
Typical wisdom suggests that the greater the demand for labour, the larger the salary increases offered. Often referred to as the ‘War for Talent’, certain skills become highly desirable and in a near full employment environment, this can lead to soaring salaries. So we would therefore expect the average UK pay rise in 2020 to at least mirror this years. Or would we?
Uncertain macro-economic environment
There are still a lot of uncertainties out there and they will impact the average UK pay rise in 2020.
- Who will win the General Election?
- Will the UK leave the EU at all and if so, what will Brexit look like?
- Will the UK/China trade dispute continue to escalate?
The General Election
Both the Conservatives and the Labour Party are falling over themselves to make spending pledges. The Labour Party’s commitments to infrastructure could lead to a boom in the Construction sector, driving salary increases forwards. However, their commitment to nationalisation could cause other sectors to become more cautious and reduce investment. Watch this space….
When I wrote last year’s blog, I really didn’t think I’d still be talking about Brexit. But here we are, seemingly no further on. Brexit still has the ability to depress demand and cause EU nationals to decide their future lies outside of the UK. If that is the case, the average UK pay rise in 2020 could increase as skills become scarcer.
China and the US
The ongoing trade dispute has the ability to suppress the average UK pay rise in 2020. Why? Although the UK isn’t an export driven economy, some of our largest trading partners are. Germany is limping along just avoiding a technical recession due to falling exports to China. If they fall into recession, as the powerhouse of Europe, they could drag others with them.
So what is the average UK pay rise in 2020 likely to be?
Given all the variables we’ve talked about, the salary surveys are still consistently pointing to a 3% average UK pay rise in 2020. This will vary from sector to sector but there is sufficient evidence out there to support a healthy increase. It probably won’t be as good as last year, but it’ll be better than most of the previous 10 years.
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