Private sector pay deals hit two-year high - but still lag inflation

Wages are bouncing back a little in the private sector - but the public sector is really feeling the squeeze...

by James Taylor
Last Updated: 19 Aug 2013
The latest pay data from Income Data Services contained a morsel of good news: the median private sector pay deal rose to 3% in the three months to April, its highest level in two years. At a time when inflation is currently hovering around the 4.5% mark, that might make some of us feel a little less poor. However, unfortunately the same can’t be said for public sector workers, whose pay (perhaps not surprisingly) was flat year-on-year. About the only consolation is that at least their mortgage repayments are unlikely to go up any time soon now…

The Bank of England’s Monetary Policy Committee keeps a close eye on wage settlement data, because of its relationship with inflation. If wages are rising faster than inflation, it’s likely that the latter will go up sooner rather than later; equally, if people are expecting inflation to rise, they’ll push for higher wage settlements, thus creating an upwards spiral. So today’s data will probably go down reasonably well: although private sector pay has bounced back a little (led, apparently, by the automotive and utilities industries) it’s still well below the current rate of CPI. And if you factor in the public sector pay freeze, the overall average is even lower, at 2.5%.

In fact, today’s economic news has been a bit more positive than yesterday: construction activity picked up more than expected last month, according to the much-watched Purchasing Managers’ Index, with new orders and new jobs both on the rise (albeit this was hedged with various caveats about the public sector cuts). There was also moderately good news from the high street, not least from B&Q.

Of course, none of this really changes the underlying picture. And as long as the data remains pretty weak, the chances of the MPC hiking interest rates any time soon look slim: the City now reckons there won’t be a rise until November at the earliest. So in short: with prices still rising faster than wages, our take-home pay is going to be shrinking for a while yet. But at least we won’t have to worry about higher repayments on our variable rate mortgages for a while.
 
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