City disappointed by unchanged growth in wages

GROWTH in average earnings was static at an underlying rate of 5.5 per cent in the year to October, dashing City hopes of a further fall.

Economists had expected Department of Employment figures to show that earnings growth had dropped to 5.25 per cent, reflecting the depressing impact of the recession on pay settlements. But most believe the measure has a little further to fall in the next few months, demonstrating the lack of inflationary pressure in the economy.

Earnings growth was static in manufacturing and services. But in the production industries - which include energy and water as well as manufacturing - it fell from 6 to 5.75 per cent.

October pay settlements included the 4.1 per cent agreement for civil service executive and support levels, down from 8 per cent in 1991. Local authority manual workers also accepted 4.1 per cent, down from 6.4 per cent last year.

The combination of slow growth in earnings, broadly flat manufacturing output and falling manufacturing employment produced a further improvement in unit wage cost growth - a key measure of competitiveness.

The amount spent on wages and salaries to produce each unit of manufactured output in the three months to October was 1 per cent higher than a year earlier, the lowest rate of increase since spring 1987. Manufacturing productivity - output per person employed - rose by 5.2 per cent in the same period, the sharpest increase in over three years.

The Treasury argued that slow growth in unit wage costs would help to offset any upward pressure on inflation from the boost to import prices resulting from the devaluation of the pound. But when recovery is under way workers may try to compensate for higher prices through wage increases.

December's Confederation of British Industry industrial trends survey suggested that devaluation had boosted order books, but had also persuaded manufacturers that they could raise prices.

A net balance of 7 per cent of manufacturers believed they would raise prices in the next four months, the highest figure for 11 months. The Treasury said much of this was a seasonal effect.

Employment in manufacturing industry fell by 13,000 in October, the smallest fall in four months. Unemployment now exceeds 10 per cent of the workforce in the South-east for the first time on record, reflecting the relative suffering of service industries. More than twice as many services jobs were lost in the three months to September as in any other quarter of the recession.

(Map omitted)