Currency Markets Ignore Cameron’s Call for Wage Increases

Above: the CBI's KatJa Hall says pay rises will come as productivity improves. (C) Pound Sterling Live.

“Basing wage increases on temporary market movements seems to be at odds with the long term economic plan.” - Katja Hall, CBI Deputy Director-General.

The rate of wage growth remains central to the outlook for the pound sterling with the Bank of England indicating interest rate rises will only come once pay shows a robust turn higher.

With currency markets being driven almost exclusively by central bank policy all eyes will now turn to the February employment market data due later in the month to see how fast pay is actually rising.

Ahead of the official data a notable intervention on the issue of pay was made by the UK Prime Minister on the 10th of February.

David Cameron told company bosses at the British Chambers of Commerce that it was now time for them to pass on pay increases to their employees:

“Now that your costs are falling and it’s cheaper to do business, I’m confident that more businesses will pass on that good economic news to their workers, in rising pay cheques and higher earnings.”

CBI: Patience Required

Cameron’s attempt to force the hand of the markets was however rejected by the leading business body, the CBI.

Katja Hall, CBI Deputy Director-General, said:

“As the recovery continues we expect wages to pick up, but this will need to go hand in hand with rising productivity.

“Basing wage increases on temporary market movements seems to be at odds with the long term economic plan.

But, Pro-Business Measures Welcomed

The call on wages was however not the only central theme of Cameron’s appearance before the Chamber of Commerce.

A Help to Grow Scheme aimed at UK SMEs was also announced, a scheme Hall welcomes:

“Medium sized businesses have often been overlooked in the past, and we’ve worked hard to champion them and their growth potential.

“We need a world class business environment to give our mid-market firms the confidence to invest, and more external finance options.

“Boosting the supply of growth capital – both debt and equity – available to these firms will better equip them for the future.”

Red Tape Cut

Meanwhile, Lord Young told business he would also seek to aid the SME sector by cutting red tape.

Tracy Ewen, managing director of IGF Invoice Finance, cautiously welcomed the news:

“Providing SMEs with the opportunity to win more work in the public sector is an important step in the right direction.

“However, the Government must remember the intense cashflow pressures that small firms are facing and therefore need to ensure that payment terms and engagement are clear and transparent.

“This will enable SMEs to manage their cashflow effectively and to plan for future growth.”