Consumption fears as wages growth slows to 3.2 per cent

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The Independent Online

Wages are growing at their slowest rate for a year, according to the latest figures from Income Data Services.

In the quarter to September, pay rates covered by collective bargaining arrangements typically rose by 3.2 per cent, down from 3.3 per cent in the three months to August, the analyst said.

Given that inflation for most of that period, measured by the RPI (most commonly used in pay bargaining) was more than 3 per cent, such modest increases mean that real wages are growing very slowly, if at all, which will have a depressing effect on consumption.

The figures also suggest that the labour market may be softer than some other indicators on the economy as a whole suggest. The latest data is in line with figures from the Office for National Statistics showing average earnings (taking the labour force as a whole and including bonuses) growing by 3.5 per cent in the year to July.

In the light of next Tuesday's pre-Budget report and Comprehensive Spending Review, the growth of pay in the public sector – after some high-profile increases in the National Health Service in particular in recent years – is also slowing.

Barclays Capital commented: " To the extent that reported inflation feeds into wages, our view is that RPI inflation is set to decline over the next six months, so settlements are unlikely to pick up markedly as we head into the key new-year pay round."

Longer-term factors are also at work. Migration has had an impact, though the extent of the effect of EU expansion is disputed.

Across the EU, there has been a trend towards higher labour market participation rates, as older people, especially women, join or return to the labour market. This, in turn, has been associated with changes in employers' attitudes, longer, healthier, lives and shortfalls in pension income after the scandals of recent years. The fear of jobs being moved abroad may also have an impact.

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