UK: PAY SETTLEMENTS - LOWER WAGE COSTS SHOULD HELP IMPROVE PROFITS.

UK: PAY SETTLEMENTS - LOWER WAGE COSTS SHOULD HELP IMPROVE PROFITS. - The UK economy has ceased its downward spiral but pay settlements continue to slide. Private sector pay settlements fell to 2.75% in the three months February to April, compared to 3%

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Last Updated: 31 Aug 2010

The UK economy has ceased its downward spiral but pay settlements continue to slide. Private sector pay settlements fell to 2.75% in the three months February to April, compared to 3% in the first quarter. For the economy as a whole, the level of settlements is just 2.6%, due to the 1.5% pay limit operating in the public sector. The fall in the headline Retail Price Index (used as a benchmark for pay awards) has been a major influence on settlement levels. Headline inflation, which peaked at 10% in October 1990, fell to 1.3% in May 1993 and pay settlements have followed suit. Lower wage deals are a major factor in the current revival of corporate profitability, notably in manufacturing, says Schroder Economics. Lower settlements combined with productivity growth (8% pa) cause unit labour costs to contract. In April labour costs were 2.8% lower than a year ago. The labour shedding which led to the productivity performance has slowed, but continuing decline in wage deals and gentle recovery in output should continue to hold down wage costs and permit margins to expand further. The prognosis for profits is good.

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