Fears of interest rates rise as earnings jump 5.2%

Click to follow
The Independent Online

A pre-election wage windfall for nurses, teachers and the police led to the steepest rise in public sector pay for almost a decade, government figures showed yesterday.

A pre-election wage windfall for nurses, teachers and the police led to the steepest rise in public sector pay for almost a decade, government figures showed yesterday.

State sector employees saw their pay rise by 5.4 per cent in April compared with a year earlier ­ the largest increase since December 1992.

The surge contributed to an acceleration in earnings across the economy which, combined with another fall in the jobless total to a 25-year low, fuelled fears that the next move in interest rates would be up.

National Statistics said average earnings growth rose to 5.2 per cent in April. Its said public sector pay rises were the biggest contributor to the overall rise. "We have seen increases for a number of public sector services; education and health primarily but also increases of some magnitude for the police," said one statistician. Incomes Data Services, an independent firm of analysts, said pay awards were set earlier than a year ago, allowing them to come on stream in April. Alastair Hatchett, director of IDS, said: "The increases were paid earlier this year so that they got into pay packets before the election."

Economists warned that the Government's political imperative to boost public sector wages to attract staff might put its inflation target under threat. John Butler, at HSBC, said: "The threat remains that the public sector catches up with the private sector, as the government's spending plans force up wages to attract and retain staff."

Michael Saunders, at Salomon Smith Barney, said it was unlikely average earnings would fall below the Bank of England's unofficial target of 4.5 per cent. "Rates are unlikely to be cut again unless signs emerge that the UK economy is slowing sharply."

There were further signs of pressure in the labour market. The number of people claiming unemployment benefit fell 3,200 in May to 976,800, the lowest since November 1975. The more reliable Labour Force survey showed the unemployment rate fell to 5.0 per cent, the lowest since records began in 1984. NS said the number of notified vacancies rose by 8,600 in May to 246,200, the highest level since the series began in 1980.

However, there were signs the labour market was starting to turn. Ciaran Barr at Deutsche Bank said the figures revealed the first fall in part-time workers for 18 months. "We need to acknowledge that the situation is fluid and that the labour market may yet be dented by the economic slowdown," he said.

The Engineering Employers' Federation said pay deals in its sector had fallen to a 12-year low. "The MPC must give very serious consideration to a further cut in rates," it said.

Comments