Pay rises hit record low - as interest rates held again

The latest private sector pay figures rather emphasise the Bank's point about the current squeeze on household spending.

by James Taylor
Last Updated: 19 Aug 2013
Much to nobody's surprise, the Bank of England held interest rates at 0.5% today. Despite inflation running at a whole 2% above target, driven by higher fuel and food prices, the Monetary Policy Committee has decided to sit on its hands for another month. Its argument is that the economy is still basically too weak to sustain a rate rise. And the latest earnings data from Vocalink's FTSE 350 Index appears to corroborate that argument: apparently, private sector pay rose at the slowest rate on record during the three months to February...

According to Vocalink's index, which is based on pay data from around 200 of the UK's biggest listed companies, earnings rose a measly 0.5% during the period. Some sectors were hit particularly hard: manufacturing staff, for instance, endured a 0.6% fall in their pay. And just to rub salt into the wounds, Vocalink reckons take-home pay in the public sector - which, lest we forget, is supposed to be shrinking this year - climbed by 1.6% during the same period. How does that work?

Of course, with inflation running at 4%, a 0.5% pay rise still amounts to a pay cut in real terms. Petrol costs are clearly one of the biggest issues at the moment; in fact, a new survey by Virgin Media Business suggests that it's pushed commuting costs up to such an extent that they now account for two months, seven days, seven hours, and 10 minutes of the average worker's annual salary (that's based on the supposed average commute of 19 miles a day, which sounds high to us, but there you go). In other words, the average commuter will stop paying their yearly travel costs at about 5:10 this afternoon. Now there's a cheery thought (or an argument for more homeworking, depending on your point of view).

Nonetheless, although inflation is well above target, this doesn't appear to be feeding through to wage negotiations yet, if the Vocalink figures are to be believed. That matters to the Bank, because this would clearly push inflation even higher and make the argument for lower rates much weaker. But while wage growth is sluggish - and that's no surprise, given the amount of slack in the job market - the Bank can keep arguing that inflation will eventually come down of its own accord once temporary factors like the VAT hike and commodity price spikes fade away. So the chances of a rate hike before the summer look relatively slim.

Economy Misc

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