* Firms see pay up 2.2 pct in 2017 vs 2.7 pct in 2016
* Recruiters report fastest pay rises in nine months
* BoE expects consumer spending to soften as inflation up
* BoE survey shows stronger exports, lacklustre investment
* GRAPHIC-UK manufacturing exports rise at fastest pace
since mid-2014 - reut.rs/2kr5NAd
* GRAPHIC-UK manufacturing material costs rise at fastest
pace since Dec 2011 - reut.rs/2kqUNmc
* One policymaker has flagged case to reverse Aug rate cut
(Adds detail from report, wraps in REC survey and BoE's
By David Milliken
LONDON, Feb 8 British employers plan to offer
the least generous pay deals since 2012 this year, the Bank of
England said on Wednesday, underscoring its view that the
economy is set to suffer from the effects of the Brexit vote.
The economy surprised investors last year when it outpaced
its peers among the world's big rich nations, driven by the
spending of households who shrugged off the vote to leave the
But the pound's fall of more than 15 percent against the
dollar since June's referendum is pushing up inflation and is
likely eat into the spending power of many households, the BoE
Inflation was running at 1.6 percent year-on-year in
January, its highest since mid-2014, and is projected by the BoE
to be running at 2.7 percent in he final quarter of 2017.
In a regular survey of 700 businesses across Britain, the
BoE said price pressures were building across supply chains, and
firms expected inflation to spread beyond food and fuel prices
to a wider range of goods and services this year.
"Consumer spending growth had remained resilient, but was
expected to ease during the year as prices rose," the BoE said,
reporting on what it had been told.
The BoE predicted last week the economy as a whole would
retain much of its momentum this year and grow by 2 percent. But
consumer spending was likely to start to slow markedly before
the end of the year, auguring a slowdown in 2018 and 2019.
Governor Mark Carney said Britain's economy would face many
"twists and turns" as it prepared to leave the EU just over two
years' time and he gave no suggestion that record low interest
rates were likely to rise any time soon.
There have been some recent signs of a slowdown in spending
by households. House prices, which are closely linked to
consumer confidence, have lost some of their momentum.
However, not everyone at the BoE is convinced that Britain's
economy will start to run out of steam.
Kristin Forbes - the most sceptical of the bank's
policymakers about the need for its huge stimulus programme -
said on Tuesday that August's rate cut might need to be reversed
soon if growth remained solid and inflation picked up.
"If these trends ... are solidified, it will become
increasingly difficult for me to justify tolerating such a large
and likely overshoot of inflation," she said.
BoE Deputy Governor Jon Cunliffe, in a speech on Wednesday,
said there were both upside and downside risks to the BoE's
forecast of a gentle slowdown in growth, and that policymakers
would keep a close eye on pay, consumption and inflation.
FALL IN INCOME?
Currently the BoE forecasts growth in households' disposable
income will slow sharply towards the end of this year and in
early 2018, but not fall outright in inflation-adjusted terms.
However, the pay intentions reported in the BoE survey on
Wednesday raised the prospect that wages will rise less than the
2.7 percent projected inflation this year.
Firms contacted by the BoE expected to offer pay settlements
of 2.2 percent on average, down from 2.7 percent in 2016 and the
lowest since 2012.
This is less than the 3 percent growth in average weekly
earnings which the BoE predicted last week for late 2017.
Businesses said their less generous pay deals this year
reflected a smaller increase in the minimum wage than in 2016,
as well as difficulties in passing on higher costs to customers.
Furthermore, large companies will also have to pay a new tax
to fund apprenticeships this year, pushing up hiring costs at
the expense of wages.
Countering this, however, businesses said staff shortages
were prompting them to consider bigger pay rises - something
also seen in a separate survey published earlier on Wednesday.
The monthly report from the Recruitment and Employment
Confederation said starting pay for permanent staff employed via
its members rose at the fastest rate in nine months.
"Employers are crying out for people to fill vacancies," REC
Chief Executive Kevin Green said.
The BoE survey offered little sign of alternative drivers of
the economy if consumer spending falters.
On the positive side, factory export orders were the
strongest since early 2014, and there were tentative signs of a
switch to domestically produced goods from costlier imports. Raw
material costs were rising at their fastest since 2011.
But investment intentions - especially for services
companies which make up the bulk of the economy - remained well
below pre-referendum levels.
(Graphics by Andy Bruce)