Although private sector pay settlements could rise to 3% this year, they will remain below inflation for the second year in a row, researchers have warned.
Thomson Reuters’ Incomes Data Services, which analyses renumeration data, also forecast a widening gap between public sector workers, who face wage freezes, and private sector staff, where pay rises may start to accelerate. It expects public sector wage increases to fall further from a typical 0.75% in 2010.
Ken Mulkearn, editor of the IDS Pay Report, told the Reuters newswire: “The increase in the cost of living, especially after rail fare rises and the increase in VAT to 20%, means that most employees’ pay will be chasing inflation. In the public sector, the government’s pay freeze policy means that staff salaries there will fall even further in real terms.”
The median wage rise was 2.2% in the three months to November compared to only 2% for most of last year and amounted to the highest increase since the first quarter of 2009, the researcher pointed out. But annual UK consumer price inflation also hit a six month high of 3.3% in November, while retail price inflation, which includes housing costs, rose to 4.7%, more than double the median pay increase.
Economists fear that below-inflation wage increases coupled with public spending cuts, the hike in VAT and rising commodity prices could limit demand and slow economic recovery, particularly in the first half of this year.
