UK wage stagnation means nation lags behind global growth upturn

04 January 2018

Global trends highlight that while there has been continued improvement in employment figures, real-wage growth has stagnated since the financial crisis. Improved consumer confidence on the back of improving real-wage growth as skill demands tighten, may be missed in the UK, where growth figures remain in the doldrums.

The world economy has seen its fortunes rise, with global economic growth of 3.6% – boosted by Chinese growth and a Eurozone pickup. Projections are for another strong year going into 2018, with estimates putting growth at 2.5%, boosted by growth improvements across the board.

To better understand the current trends in global economic performance, Mercer released its ‘Economic and Market Outlook 2018 and Beyond’ study. The study combines a range of key economic indicators with its analysis to identify likely scenarios in 2018, as well as risks to various asset classes’ value, such as rates rises and geopolitical uncertainties.

Unemployment at multi-year lows

The global economy’s return to pre-financial crises levels of growth, has also seen the level of unemployment across developed economies hit lows not seen since the 1980s. Unemployment fell steadily between 2013 and 2017, with more and more people being engaged in some form of employment.

However, while unemployment is down, concerns around the kind of employment remain. in the US, for instance, many are underemployed, resulting in a considerable skill mismatch. Working poverty is also up, with many people barely living pay-check to pay-check. Concerns around pay have increased in recent years too, with many in the UK finding themselves paid relatively less than prior to the crisis. Companies, meanwhile, have boosted their profit margins to new heights, resulting in, among others, increased inequality and social disintegration.

US wage pressures building

The trend of relatively stagnant wage growth, of around 3% annually, and decreasing unemployment figures, is to come to an end according to the firm, as companies increasingly find themselves competing for skills.

Europe is projected to continue its growth spurt into 2018, with unemployment falling further (it fell by 1% on last year) to 8% - the lowest level since 2000 and in line with full employment across the region. Wages too, are projected to increase, while inflation in the region will remain steadily below 2%. 

Consumer crunch

The UK, however, continues to suffer from relatively high levels of inflation, at more than 3% in the most recent quarter, while wage growth continues to lag. Increased wage pressure in the current environment is unlikely to see wages return to pre-crisis levels (accounting for inflation) before 2025, thereby hampering consumer spending power in the nation, in spite of returning confidence. As a result, leading economists have recently forecast that the UK will only see growth of 1.5% in 2018.

Consumer confidence very high

Globally, consumers are increasingly optimistic, following a protracted period after the financial crisis during which individuals, and businesses, were in the dumps. Consumers’ confidence breached positive territory in 2014, which it has then sustained – the most recent year and the projection for next year is continued confidence growth.

Businesses, however, have seen up and down swings in confidence since the crisis, entering positive territory in 2014, before falling into negative territory throughout 2016 and into 2017. The analysis suggests that 2018 will be a relatively good year for business, with confidence rising sharply in the most recent period of analysis.


More news on


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.