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<\/p>\nYoung workers at Glasgow\u2019s Village Hotel are celebrating a 10 per cent pay rise and an end to zero-hours contracts after staging the first UK hotel strike since the Thatcher era \u2014 in a sector where many employers are slashing staff numbers.<\/p>\n
Their settlement encapsulates the problem with which the Bank of England is grappling: the jobs market is weakening, but pay is still rising at a pace that looks incompatible with the central bank\u2019s 2 per cent inflation target.\u00a0<\/p>\n
The tension is clearest in hospitality, a sector heavily reliant on young, part-time, low-wage workers. Its labour costs have risen faster over the past year than in any other industry, thanks to the combination of April\u2019s increase in national insurance contributions and the especially steep rise in the youth rates of the minimum wage.\u00a0<\/p>\n
\u201cIt\u2019s a perfect storm,\u201d said Bryan Simpson, an organiser at Unite the Union, which led the hotel walkout in Scotland\u2019s biggest city. \u201cObviously we think the minimum wage should be higher, but businesses are shedding thousands of workers because they can\u2019t manage.\u201d<\/p>\n
Village said it was pleased to reach an agreement and \u201cproud of our highly competitive package\u201d. But Simpson noted the group was now offering pay rates and contract terms that could soon become legal requirements, as ministers reform employment laws and seek to narrow the gap between the youth and adult minimum wage rates.\u00a0<\/p>\n
Other hotel chains are cutting staff, turning to automated check-in and easy-cleaning room designs to slim down reception and housekeeping teams. With many caf\u00e9s, bars and restaurants also struggling to absorb higher costs, more than 108,000 of the 164,000 fall in payroll employment registered in the year since the election has been in hospitality.\u00a0<\/p>\n
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Economists said the combined effect of policy changes had a bigger effect than initially expected on prices of consumer-facing services \u2014 which account for half the UK\u2019s inflation basket \u2014 as well as in driving food inflation higher than elsewhere in Europe.\u00a0<\/p>\n
\u201cFor the bank, it\u2019s part of the story of sticky services inflation,\u201d said Michael Saunders, a former BoE rate-setter and now adviser to consultancy Oxford Economics.\u00a0<\/p>\n
April\u2019s steep increase in the youth rates of the minimum wage \u2014 which rose much faster than the main adult rate \u2014 were also \u201cpart of the story of why it\u2019s having such a large effect on employment\u201d, he added.\u00a0<\/p>\n
The critical question, though, is how long workers will be able to bargain up pay despite weak hiring. With inflation at 3.8 per cent in July and set to rise further, the BoE has made clear it can keep cutting interest rates \u2014 now at 4 per cent \u2014 only if it sees enough evidence of pay pressures easing.\u00a0The latest rates decision will be announced this week.<\/p>\n
A slowdown is under way \u2014 annual growth in private sector pay, which peaked close to 8 per cent in 2023, fell below 5 per cent in the latest official data. But the BoE cannot be sure wage growth will return to the roughly 3 per cent rate it sees as consistent with its 2 per cent inflation target. <\/p>\n
Business surveys suggest most employers expect to make pay awards of 3-4 per cent next year. Official measures usually show overall UK wage growth, including workers moving to new jobs or winning promotions, to be higher than the awards captured by these surveys.\u00a0<\/p>\n