Real pay growth to stagnate in 2017 and 2018

07 August 2017

UK private sector workers are again set to see wages mired in stagnation, according to a new report. While real wage growth is relatively high, at 2.9% over the coming two years, a high headline inflation rate of 2.8% over the same years will see real wage growth stuck near 0% in real terms, creating new economic uncertainties as consumer spending is expected to drop.

Since the financial crisis, real wage gains for workers across much of Europe have been relatively insubstantial – in many cases, keeping up with inflation. Latest data from recruitment specialist Willis Towers Watson, titled 'Salary Budget Planning Report', explores wage growth throughout Europe, including the latest UK specific figures.

Wage growth in the UK has stalled in recent years, thanks in no small part to governmental austerity, according to a recent UCL report. The cap on public sector pay in particular has been a continued area of contention, where many workers has seen their real wages decrease significantly in real terms; teachers for instance, saw a decrease of £3 an hour and police officers by £2, while the government recently voted down an opposition bill tabled by the Labour Party to end the public sector pay-cap in light of the work done by firemen and the police in a succession of summer tragedies. Private sector workers too have seen a significant drop in real term wages in recent years, with an LSE study estimating an effective 10% decrease since the financial crisis to 2015.

The latest study does not bode well for wage growth for UK workers over the coming two years – particularly in light of inflationary pressures from, among others, a lower pound. Private sector employers are set to raise wages by around 2.9% this years, the highest increase in a number of years, however, the rate of inflation is set to hit 2.8% this year – reflecting a meagre 0.1% real wage increase for workers – on average. The research project a similar trend in 2018, with wage increases also at 2.9% and inflation, again, running at around 2.8%.

Real pay growth to stagnate in 2017 and 2018

Commenting on the figures for the UK, Keith Coull, Senior Consultant in Data Services at Willis Towers Watson, said, “The UK jobs market has otherwise been robust with record employment rates and the lowest unemployment since 1975. But coming so soon after the post-crisis pay squeeze, this latest freeze on wages, driven by an inflation rate accelerating sharply since 2016 and showing no sign of slowing down, suggests the pressure on pay and living standards is likely to intensify in the coming months.”

European figures

The result is considerably below that of the rest of Europe, where on average, real wage growth is projected to hit 1% this year. Ireland will see the highest level of real wage growth, up 1.9%, while France and Germany see increases of 1.1% and 1.2% respectively. Dutch private sector employees will see their wages up by 1% in real terms.

“In the European labour market, real terms wages are still growing in 2017, but rising inflation means those real wage increases are less generous overall than in 2016. For example, 82% of countries in the EU28 will get pay increases this year above or roughly in line with the prior year increase. However, when taking rising inflation into account, there are no countries with real wage increases above or in line with prior year increases. The average EU28 real terms pay increase is now 0.9%, which has dropped from 2.6% in 2016.

UK employers, among others, meanwhile, have also begun to offset risks to individuals through the so called ‘gig economy’, which, when combined with employers leveraging zero hour contracts, have seen the number of workers living in uncertainty rise to more than 3 million in the UK. Household borrowing, continues to rise as lenders offer increasingly low rates – with the Bank of England recently warning of a “spiral of complacency” about increased consumer debt loads and low wage growth.


High employment drives deals to access fresh talent

09 April 2019

The UK continues to have a historically low unemployment rate, resulting in a tightening employment market and demand for recruitment services. The industry topped £12.3 billion last year, while valuations continued to rachet up. There were were 32 firm acquisitions in the recruitment services space last year, up significantly on the previous five-year average.

Labour markets globally are tightening, particularly in developed economies. At the same time, access to top talent is becoming increasingly difficult to source, as demand for that talent continues to rise. Higher demand has been one of the key drivers for acquisitions in the space. New analysis of the recruitment M&A market, from consultancy firm BDO, looks at current trends and future projections for activity in the segment.

The UK employment rate has grown considerably over the past decade, with the number of NEET decreasing, more women joining the workforce, and older people continuing to work, among other trends. Participation rates hit more than 75% in 2018, up from around 73% in 2014. The unemployment rate dropped to 4.1% last year, the lowest level in more than 40 years.

UK Recruitment Market


The recruitment industry has enjoyed strong growth over the same period, with revenues increasing from around £8 billion in 2014 to £12.3 billion last year. However, the growth rate for the industry is expected to stall for the coming years – the firm is projecting annual growth of 0.1% to 2024. The stall reflects deep seated uncertainties stemming from the future of the UK, from migration to internal employment in an increasingly uncertain future.

According to the firm’s analysis of market trends for UK listed FTSE recruitment companies, their performance over 2018 outperformed the wider FTSE market by a significant market during some months – the end-of-year uncertainty hit both recruitment and non-recruitment firms with relatively equal strength. The drop partly reflects market sentiment about the future of the UK.

FTSE Listed Recruitment Firms Average EV/EBITDA Multiple


The study also considered the multiples growth, average EV/EBITDA multiples, over the past year – which has shown considerable ups and downs. The yearly average multiple of 10.4x was above that of 2017’s 9.9x – although a 26% drop at the end of the year was significant. The drop was tied to the relative volatility in macroeconomic conditions affecting the globe, though another major contributing factor has been Brexit and political instability.

Global M&A

The global recruitment M&A market was particularly active in the UK, with 32 deals last year – a five-year high, and well above the 17 recorded for second-place US. Deal activity in the UK was focused on expertise and capacity in industrial and technical sectors, reflecting skills shortages in those segments. The US was largely focused on healthcare-related M&A, representing 25% of their market.

Overall, of the 92 deals in 2018 (a 21% drop on 2017) generalist firms were the most in demand, at 25% of the total, followed by education at 14% and engineering & construction at 13%. Software saw relatively low demand, at 2%.Investment into the UK by country

In terms of investments made into the UK, domestic investment continues to be the most dominant, accounting for 24 deals. Japan made three deals, although Brexit is seeing the country become increasingly nervous about investment. The US accounted for two deals. The longer-term trend shows that domestic investment is up on 2017, hitting the highest level in five years, while the US has reduced its M&A investment into the UK.

Commenting on the results, the firm noted, “The latest report shows the recruitment sector remains strong and continued to grow through 2018 despite facing many challenges. Notwithstanding the personalised nature of these services, the market continues to evolve, seeing traditional recruitment firms utilising available technology along with new entrants showcasing innovative platforms.”

Related: High UK employment masks troubled economy.