The Bank of England governor, Mark Carney, needs to look no further than the pay of his own staff to figure out why – when he believes we’re on the verge of a pay boom – most people’s wage rises are stuck in first gear.



The Bank swatted aside a dispute last week with low-paid staff that had become so toxic inside Threadneedle Street that even the pink-jacketed, top-hatted front-of-house greeters had joined their colleagues in the maintenance section and other blue-collar roles by downing tools.

Carney had offered a 1% pay rise in line with the public sector pay cap. He took a tough line, even though the Bank is not seen as part of the public sector.

And he held the line with only a few minor concessions. A little extra money was promised to a handful of the very lowest paid, a little extra holiday entitlement was also part of the modest package, and there was a pledge to include the union in future pay talks from the start.

The 1% pay cap remains in place. And why wouldn’t it when fewer than 100 of the Bank’s 4,000 employees felt aggrieved enough to go on strike? They were angry enough to protest for three days before the dispute ran out of steam.

A longer strike was never on the cards; it is a sad fact that workers have such little power in Britain today. The railway workers might use their muscle should they embark on a winter of disputes over driverless trains, but elsewhere workers face draconian employment laws that make them among the most flexible in the world when it comes to how and when they work.

That’s not how the Bank reads the broader economy. It disregards the dispute under its nose and believes that 3%-plus pay growth is around the corner. Listening to the speeches of some policymakers, anyone would think that with unemployment at a 40-year low of 4.4% in June, the workers would have taken their dispute to the wire and, without a more generous offer, quit for a better job elsewhere.



The Bank’s argument is that full employment, if not already here, is just around the corner. Take a look at London, which is supposedly in the grip of a skills shortage exacerbated by the departure of European migrants heading home. Employers are crying out for people and are poised to rip up their pay rates in favour of more generous salaries to secure the staff they need. With inflation expected to rise towards 3%, from 2.6% in July, workers need to see their pay packets following suit.

In this scenario, a combination of few available workers and price rises in the shops will put huge pressure on employers to pay higher wages or risk unfilled vacancies.

It is a message the monetary policy committee (MPC) is likely to repeat on Thursday when it makes its next judgment on the economy. The committee will most likely hold the base interest rate at 0.25% with the strong hint that a rise is imminent now that the labour market is tight and vacancies are rising.



The Bank is not alone. Several City economists conclude that wages are about to jump now that the high level of vacancies is out of sync with the low level of unemployment.

Kalum Pickering at Berenberg bank said: “We expect that by the end of the year, and certainly by the beginning of 2018, providing sterling doesn’t take another major leg down, real wages will be rising again.”

To back up his point, wages across the economy have already started to rise from 1.6% per year at the beginning of the year to 2.1% in the latest figures. It will take a surge in wage rates to get past 3% to meet Pickering’s forecast of inflation-busting pay rises, but as he points out, three months of improving pay growth shows it is going in the right direction.

Yet, given the Bank of England strike’s outcome, the central bank and its supporters in the City, at least as far as its analysis is concerned, seem completely out of touch. They seem to ignore the fact that the job market is stratified and regional and the answer to a chronic labour shortage is not necessarily higher pay.

In the construction industry a shortage of specialist staff, which cannot be met by the current pool of skilled workers, has forced building firms to delay projects. Anecdotal evidence is that employers are not willing to take a cut in margins and customers are unwilling to pay more, so projects are mothballed.

The Chartered Institute for Personnel and Development, which regularly talks to human resources directors across the private and public sectors, says the bottom end of the labour market continues to have a plentiful supply of workers. Its last survey showed there were an average of 24 applications for each low-skilled job, 19 candidates for every medium-skilled vacancy and eight for each high-skilled post.

One factor was the continued influx of EU workers.

It said: “EU net migration levels remain well above post-enlargement average levels due to a continued strong supply of EU15 and Bulgarian and Romanian nationals. Initial fears that Brexit would have a material impact on employers’ ability to fill vacancies therefore seem to be somewhat premature.”

Then there is the government’s continuation of austerity, which will have the effect of making low income households even more desperate for a job, and when they have one, ask for longer hours just to make ends meet.

Maybe Bank officials comfort themselves with the news that McDonald’s workers have also struck for higher pay along with their own low-paid staff. But again it was just a smattering of staff who felt able to confront the restaurant chain – in line with the real trend, and not the Bank’s fantasy projections, McDonald’s has so far felt little anxiety about workers quitting for higher pay elsewhere.

So the flexible market for labour remains firmly in place and pay increases are a pipe dream for most. It’s why the archbishop of Canterbury joined the IPPR thinktank’s commission on economic justice to say, among other things, that trade unions needed more support.

“We are failing those who will grow up into a world where the gap between the richest and poorest parts of the country is significant and destabilising,” Justin Welby said.

The Bank, to maintain the obvious respect it still commands with Britons, could more helpfully give a more accurate picture of the economy. For this to happen, Carney and his fellow committee members need to get out more.