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Cath Everett

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Pay increases still lag behind inflation

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Although average pay rises have jumped to the highest level for two years, they are still little more than half that of retail price inflation, the traditional benchmark for wage deals.
 

Figures from Incomes Data Service revealed that the median pay award for the three months to January had jumped to 2.8% from 2.2% in the three months to December. But the retail price index surged by 5.1% in January too, while consumer price inflation, which does not include housing costs, likewise rose by 4%, double the Bank of England’s target.
 
Ken Mulkearn, editor of the IDS Pay Report, said: “Our latest figures show that wage rises have picked up in manufacturing and the level of awards in private services appears to have picked up too. The number of awards at 3% or above has been rising, and this has emerged as a key figure in pay-setting.”
 
But pay awards were still “trailing some way behind inflation” and the gap looked set to continue if inflation continued to increase, he added.
 
January is considered to be an important month for wage settlements as most private sector increases are awarded in the first month of the year. The end of the financial year in April is also considered significant, however, as this is when the public sector makes its pay awards, although most public authorities have now introduced two-year pay freezes.
 
Mervyn King, the Governor of the Bank of England, has suggested that real wages are likely to be no higher in 2011 than they were in 2005, which means that pay has in effect been subject to a six-year freeze, the most prolonged squeeze on purchasing power since the 1920s.

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