Economic commentary - November 2008
A black October on the stock markets is already turning into a bleak November on the shop floor and in the jobs market.
With share prices tumbling around the world at unprecedented rates, the crisis has now moved beyond the world's financial systems and, though we do not yet have formal confirmation, has almost certainly plunged us into recession (defined, of course, as two consecutive quarters of shrinking GDP). Even the governor of the Bank of England thinks so.
Figures released by the Office for National Statistics in mid October showed unemployment on the standard international measure to have risen in the three months to August by 164,000 to 1.79 million, the biggest rise for 17 years.
The consensus among commentators is now that unemployment will to rise to 2 million or more by Christmas 2008, and some believe a further 1 million could join the dole queue in 2009.
Inflation also rose in September. After falling to 4.8% earlier in the summer, the Retail Prices Index (RPI) used by most private sector pay setters crept back to 5%, while the Consumer Prices Index (CPI) rose from 4.7% to 5.2%.
Although these figures represent a 16-year high, most economists now see little cause for concern over inflation. House prices are in steep decline, and both oil and food prices are also dropping, leading to predictions that inflation may fall to as little as 1 or 2% by summer 2009.
However, this raises a dilemma for those setting pay early in 2009 which is already evident from the divergent evidence being submitted to the Low Pay Commission by employer organisations and trade unions.
In its submission, the British Retail Consortium says that given the tough trading conditions on the high street, future increases "should fall on the lower side of average earnings" - and suggests a figure of around 3% in 2009.
On the trade union side, meanwhile, the argument is that employees are having to deal with the effect of dramatic price rises over the past 12 months. The shopworkers' union USDAW wants to see the National Minimum Wage set at more than £6 (a rise of at least 4.7%).
Similar arguments will doubtless be had over many negotiating tables over the coming six months - and will also help shape much of the employment relations picture even in companies where there is no formal employee involvement through unions or other means.
The very early indications from CELRE salary survey data published this autumn are that employers expect pay settlements to fall back in 2009, though not by any dramatic amount.
Participants in our Voluntary Sector Salary Survey, for example, had, on average, awarded 3.4% at their last review, but expected to see this fall to 3% the next time round.
Meanwhile, the annual Pay Prospects survey (subscription required) carried out by Industrial Relations Services for XpertHR found that just one in five employers expects to award less in 2009 than in 2008, while two in five expect their next pay award to exceed the last one.
The survey of 268 private sector employers found that most were looking to RPI as their benchmark for pay rises in 2009, but with company performance and affordability likely to exert the greatest downward pressure on settlements.
