Manufacturing pay awards are continuing to be overshadowed by rises in the service sector, the latest CBI pay databank survey shows.

Manufacturing pay settlements stayed at 2.9 per cent in the three months to July. Meanwhile, service sector pay awards averaged 4.6 per cent in the three months to July, compared with 3.9 per cent in the previous quarter.

“Clearly, its a ‘tale of a two speed economy’. Manufacturing settlements are relatively low and reflect major downward pressure on prices, coupled with the impact of the global slowdown”, said CBI’s Head of Economic Analysis, Sudhir Junankar. “Coming on top of recent official figures which showed inflation under control, we remain confident our data do not put the government’s inflation target at risk”, Junankar added.

The sharp rises in service sector pay were influenced by a batch of high awards in May among professional services firms that have relatively small numbers of employees. The impact on average earnings as a whole will be therefore be limited, the CBI believes.

This time last year manufacturing settlements averaged 3.1 per cent and services settlements averaged 3.8 per cent. Since August 2000, 11.5 per cent of manufacturers said they had experienced pay freezes lasting at least six months. Where awards were made, more than two thirds of them came in below 3.5 per cent.

Manufacturers said the inability to increase their prices was a very important downward pressure on pay. The most important upward pressure on pay in the service sector was said to be the need to recruit and retain staff, while in manufacturing the high cost of living was the leading influence behind pay rises.

The CBI advise that the CBI Pay Databank data is not directly comparable to the official average earnings figures. It only includes bonuses if changes to bonus schemes are made as an integral part of the pay award. The data also excludes any salary increases due to changes in hours worked or promotions.