With the Bank of England increasing interest rates from a record low of 0.25% up to 0.5%, business owners will have been left wondering how it could affect their finances. Could companies expect to see employees requesting a pay rise to reflect growing day-to-day costs?
Millennials(Those born in the early 1980’s to the mid-1990’s)
Money is not often the core driver behind their career decisions. Aspects such as work/life balance, brand identity, and company values are often the main reasons for choosing their role and place of employment. If a millennial is already part of a company that aligns with their personal identity, a short-term increase in living costs will likely have a negligible effect.
Matters like mortgage repayments will also have little influence on millennial workers too because today’s 30-year-olds are only half as likely to own their own home as their baby boomer parents. With such few millennials owning their homes, an increase in interest rates on mortgage repayments will have little impact.
Millennials are more likely to job-hop rather than ask for a rise, an increase in living costs and diminishing spending ability will more than likely see millennials look for new roles rather than asking for pay rises — something they would have done prior to the interest rate rise too. But if millennials are seen as the future of your business, employers will need to focus and emphasis the company’s values that their younger employees most associate themselves with.
Generation X(Those born between early-to-mid 1960s to the early 1980s)
These people are often homeowners tied into variable rate mortgages. An increase in interest rates will have a significant impact on how far their pay-packet goes — especially when factoring in aspects such as childcare, increasing fuel costs, and food price increases — issues that specifically affect Generation X more than millennials.
Whilst you would imagine that this would lead to a vast increase in staff asking for pay rises, it may not be as clear cut. The average total weekly earnings grew by 2.2% in the three months to August compared with the same period a year earlier, while the Bank of England noted in September 2017 that pay deals had “clustered around 2% to 3%.
Whilst this is not anywhere close to the 4.25% earnings growth prior to the financial crisis, a steady increase in wages could see a majority of workers happy with their lot — especially as inflation is somewhat aligned with earnings increases at 2.9%. Add in tentative signs that pay could be picking up for 82% of workers in the private sector, and initial panic over Generation X workers asking pay increases should to some extent be calmed.
But if there is one generation in particular who may ask for a salary increase, it is still more likely be home owning Generation Xs with families tied into variable mortgage deals — especially as those in Generation X are more likely to want to be more company-loyal, and will want to stick around at their current workplace for stability.
Should employers worry about wage increase requests?
On the whole, an increase in pay packets from workers is not likely to be hugely significant. With more and more employees favouring company culture over financial gain, improving benefits packages, company perks, and modern work environments are far more likely to have a bigger impact on keeping current employees happy, and attracting the highest quality candidates for new roles.