Inflation-busting pay settlements put Monetary Policy Committee on alert

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The Independent Online

Less than 3 per cent of new wage settlements are coming in below inflation, according to a report today from an influential labour market analyst.

The most recent 82 pay agreements recorded by Incomes Data Services included just two below the latest headline rate of 2.1 per cent. The report is the latest to flash a warning light over the acceleration of pay awards and will be closely examined by the Bank of England ahead of its decision on interest rates on Thursday.

IDS said the latest wage deals included a "significant proportion" at between 4 and 5 per cent with some as high as 15 per cent.

The largest deal was a 15 per cent award for call centre staff at Carole Nash Insurance, a specialist in motorcycle business based in Altrincham, Greater Manchester. There was a 10 per cent rise at internet bookseller Just more than half of the rises were between 3 and 4 per cent, while a third were under 3 per cent.

A total of 1.6 million workers will benefit from the latest deal of which 1.3 million are covered by the April local government deal. This agreed a 3.5 per cent award, underpinned with a minimum rise of £380 that boosted wages for the lowest paid by 4.3 per cent.

Earlier this month, IDS warned that recent public sector deals were likely to put pressure on private sector employers to hike the wages of staff on the lowest grade. Today's report provided the first evidence of this trend in the retail sector. Kwik Save has raised the pay of its lowest grade workers by 9 per cent as part of a 2.5 per cent deal. Somerfield has awarded up to 6.9 per cent to its lowest-paid staff. The labour market is set to be a key area of discussion at this week's meeting of the Monetary Policy Committee on Wednesday and Thursday.

Official figures earlier this month, showed average earnings hit a one-year high of 5.2 per cent in April, thanks to the sharpest rise in public sector pay for a decade. Underlying inflation, the measure targeted by the Bank jumped to 2.4 from 2.1 per cent in May, and there is evidence of robust retail sales and a strong housing market. Last week economic growth was revised up to 0.5 per cent. But weakness in manufacturing and uncertainly in the global economy makes it almost certain the MPC will leave rates on hold at 5.25 per cent on Thursday.