Engineering pay rises top 3% cent

BY DIANE COYLE

Economics Correspondent

Pay settlements in the engineering industry have breached the 3 per cent level for the first time in two and a half years, according to figures published yesterday by the Engineering Employers' Federation.

Ian Thompson, head of economics at the EEF, said that although the rise in recent months was not large, it would have a psychological impact. "There has been a noticeable shift in the number of settlements from the 2-3 per cent range to the 3-4 per cent range," he said.

The new figures provide more evidence that wages are starting to increase at a faster pace. Pay settlements are one of the indicators of future inflationary pressure closely watched by the Bank of England and the Treasury in their monthly assessment of the economy.

The Bank highlighted rising pay as a potential danger in its latest quarterly Inflation Report.

The average settlement in engineering was 3.18 per cent in the three months to April. April is one of the two busiest months of the year for pay awards. In January, the other busy month, the average rise in 545 settlements was 2.94 per cent.

Average pay awards in the industry have been creeping up since mid-1993. Until recently this has been due to a diminishing number of pay freezes.

Last month these accounted for fewer than one in 20 of the total number of settlements, down from nearly one in three in April 1993.

In the latest few months higher awards in cases where there has been a pay rise have also contributed to the upwards creep. Two-fifths of April's 178 reported settlements were higher than 3 per cent.

Mr Thompson said that he thought there would be a limit to the trend in settlements. "Firms will not make increased pay offers that they cannot afford," he said.

In addition, the level of awards tended to follow the headline figure for retail price inflation, so future pay trends would depend on what happened to prices.

However, the EEF has recently reported the first signs of an increase in employment in the engineering industry after years of job-cutting.

The increase in settlements in the industry also follows higher pay agreements in several other industries. Recent settlements include a 3.5 per cent increase for 200,000 building workers in January, rises above 3 per cent covering 165,000 textile industry employees in the same month, and a 3 per cent increase for 93,800 employees at J Sainsbury, the supermarket chain, in March.