Earnings growth hits 25-year low

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The Independent Online
AVERAGE earnings grew by 5 per cent over the year to November, a 25-year low, the Department of Employment said yesterday, writes Robert Chote.

The figures are good news for inflation as they suggest that the boost to import prices from the pound's devaluation may be offset by slowing pay costs, City economists said.

Earnings growth in manufacturing industry was unchanged at 5.75 per cent in the year to November, although the previous month's figure was revised down.

Earnings growth in service industries slowed to 5 per cent in the year to November, from 5.25 per cent in the previous month.

Pay settlements are falling sharply under the influence of lower inflation, squeezed profits and higher unemployment. November's figure included 3.6 per cent for 30,000 Rover employees, less than half their 1991 settlement. Firemen also settled for less than a year ago, 4.9 against 5.6 per cent.

December's earnings figures are also likely to see the benefit of lower settlements.

The CBI pay databank shows that settlements subsided to 3.1 per cent between September and November. The official figures outstrip settlements partly because of factors like promotions and because they cover all employees, not just those who settled in the latest period.

Roger Bootle, chief economist of Midland Global Markets, described the figures as extremely encouraging. For the first time since 1986, manufacturers could soon be paying less on wages and salaries to make each unit of output than the year before, he said.

Unit labour costs in the three months to November were 0.5 per cent higher than a year earlier, the smallest rate of increase since spring 1987. Productivity growth - the annual change in the amount of output produced by each factory worker - rose to a three-and-a-half year high of 5.4 per cent.