Interest rates rose by a quarter percent yesterday, to 4.75% and in a warning to employers the CIPD have advised businesses to keep a cap on wages to avoid fuelling further rises.

The decision came as no surprise to UK Plc. Continued house price inflation, soaring consumer debt and a continued slowdown in the manufacturing sector meant an upwards rise looked likely.

Dr John Philpott, Chief Economist at the Chartered Institute of Personnel and Development (CIPD) commented:

“The latest quarter point rise signals the MPC’s determination to combat rising pressures. However, while this demonstrates to employers the importance of keeping firm control of wage costs, staff will be seeking pay rises to compensate for the higher cost of borrowing and mortgages.

Since October, 2003 rates have increased five times. Inflation last month at three per cent overtook average pay awards. Keeping a ‘tight’ grip on pay was the advice given by the CIPD to cut inflation and remove the need to raise interest rates further.

Philpott warned: “With the labour market getting ever tighter, and recruitment and retention pressures mounting, the temptation will be to concede to higher pay to meet higher cost of living claims despite the fact that the Consumer Prices Index (CPI), which excludes housing costs, remains low.”

In related news, however, the pressure to raise wages for HR professionals was realized this week.

Research conducted by the Chartered Management Institute and Remuneration Economics, showed that resignations amongst HR managers increased in the year to January 2004. Pay, according to the report was seen to have a direct impact on retention levels.

See the full story here: HR Managers Quit as Earnings Stutter