Pay award levels are holding steady, easing fears that falling unemployment will force up inflation, according to a survey published today (Monday) by the Confederation of British Industry (CBI).

The CBI’s latest Pay Databank Survey shows service firm settlements averaged 4.1 per cent in the three months to February 2001, compared with 4.2 per cent in the three months to November 2000. A year ago, settlements averaged 3.4 per cent.

Manufacturing pay settlements increased slightly to an average of 3.1 per cent in three months to February 2001 against 2.9 per cent for the three months to November 2000. Manufacturing settlements a year ago averaged 2.5 per cent.

Sudhir Junankar, CBI Associate Director of Economic Analysis, said : “With headline inflation falling, cost of living pay pressures are easing but labour market pressures are rising only slightly. The overall picture on basic pay settlements is one of encouraging stability. This survey provides further evidence that concerns that a tightening labour market would lead to upward pressure on settlements have not been realised.”

Forty four per cent of service companies cited the need to retain or recruit staff as the main factor behind increased pay awards. This was followed by high cost of living increases which were reported by 38 per cent of firms.

An inability to raise prices has kept pay awards down since August according to 39 per cent of manufacturers and 30 per cent were affected by low profits. High cost of living increases were a very important upward pay pressure according to 34 per cent of manufacturers while 21 per cent gave the need to recruit or retain skilled labour.

Since the last CBI Pay Databank Survey two months ago cost of living pressures have reduced but labour market pressures have increased.