Inflation pressure re-emerges in labour market

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FRESH evidence that inflationary pressure is stirring in the labour market emerged yesterday with official figures showing the first rise in the growth rate of average earnings for two years.

Higher bonus and overtime payments meant that underlying average earnings were 3.25 per cent higher in December and January than a year earlier, according to the Department of Employment. Last month, earnings growth was estimated to be only 3 per cent in the year to December, unchanged on the previous three months.

The DoE said the rise had not been driven by higher pay settlements, although surveys by the Confederation of British Industry, Incomes Data Services and Industrial Relations Services have all shown pay rises picking up.

The latest earnings figures included the 3 per cent pay increase settled on by 30,000 workers in the vehicle building industry, which followed a pay freeze last year.

But the knitting and clothing industry federations both reached lower settlements than last year, while the 286,000 workers in motor vehicle retail and repair settled at 2 per cent for a second successive year.

However, DoE figures show that more substantial rises in pay settlements are in the pipeline. In April more than 600,000 workers in schools and the National Health Service will receive settlements of almost double the 1.5 per cent pay ceiling set for 1993.

Earnings continue to rise faster in manufacturing than in service industries. Underlying average earnings in the year to January for the 4.2 million manufacturing workers were 4.5 per cent higher than a year earlier, against 4.25 per cent in the year to December.

The rise in manufacturing earnings helped to push up the rate of increase in unit labour costs - the amount spent on wages and salaries to produce each unit of output - to a 16-month high.

Manufacturing unit labour costs in the three months to January were 1.3 per cent higher than a year earlier, the sharpest rate of increase since autumn 1992.

Despite the 1.5 per cent ceiling on public-sector pay settlements, the 15.7 million workers in the service sector enjoyed a 3 per cent rise in average earnings in the year to January, the third successive month in which this growth rate has increased.

Earnings growth in services has been depressed by the 1.5 per cent ceiling but, according to Simon Briscoe of Warburg Securities, it may have been boosted by year- end bonuses in financial services.