GO
Loading...

Britain's workforce: About to be transformed?

Immigrants, pensioners and benefit cuts will transform the U.K. workforce over the next two years, keeping real wages low even as the economy improves, a forecasting group said on Monday.

EY (Ernst and Young)'s ITEM Club, which studies the U.K. economy, said Britain's labor supply — the number of people available to work — would be one-million-workers larger by 2015.

This is in large part because 400,000 older people will remain in work due to the phasing out of the default retirement age of 65, the group said.

The extra people in the jobs market mean that real wages will remain low, despite the U.K.'s economic recovery and "competition for talent" on the part of employers.

"It is hard to find another episode where employment has been rising and real wages falling for any significant period of time," said Peter Spencer, the ITEM Club's chief economic adviser, in a report.

Oli Scarff | Getty Images

Spencer told CNBC: "We've seen the supply of new workers increasing and that is unusual: normally in a recovery we'd see just the demand for labor increasing, and that drives up employment and wages together. But because this time supply and demand has risen, real wages have fallen."

The ITEM Club forecast that wages would remain in line with inflation this year, before starting to rise again in 2015, as demand for labor starts to exceed supply.

"As we go forward, the 'older worker effect' will diminish. We do see the strengthening demand for labor pointing to a situation where there will be a completion or war for talent," Spencer said.

According to the U.K.'s official statistics body, the unemployment rate fell in the three months to October to 7.4 percent, its lowest level in four-and-a-half years.

More recent data also supports the ITEM Club's assertion that demand for higher-qualified workers will rise. Last week, High Fliers Research forecast that graduate recruitment would hit a seven-year high in 2014, based on a survey of 100 leading public, private and non-governmental organizations.

(Read more: UK graduate recruitment seen at highest since 2007)

In addition, a survey of financial services firms published by PwC and CBI (a U.K. business lobby group), also published on Monday, found that 47 percent of companies employed new people in the fourth quarter of 2013.

"Companies are now much less concerned about the impact of the level of demand and regulation on business in the year ahead, and more mindful of skills shortages, the capacity of their systems to deal with new business and stronger competition," the report said.

However, Spencer disputed claims by the likes of Domino's that there was a shortage of workers available to do lower level jobs. In December, the pizza delivery giant's CEO, Lance Batchelor, said he had been unable to fill 1,000 positions due to tighter immigration rules and Britons not wanting the work.

(Read more: Pay better wages, UK minister tells Domino's)

"I simply don't understand that… All the evidence is that there are a lot of young people competing for these jobs," Spencer said.

"I don't believe there is any evidence that tighter immigration regulations are causing labor shortages… There are some 'dirty jobs' such as fish processing which Brits don't want to take, but that's not pizza delivery."

—By CNBC's Katy Barnato. Follow her on Twitter: @KatyBarnato

Symbol
Price
 
Change
%Change
DPZ
---

Featured

Contact Europe News

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    › Learn More

Europe Video