Manufacturers urge BoE to hold rates steady

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The Independent Online

Britain's manufacturers will urge the Bank of England today not to be swayed by calls for interest rate rises to head off inflation, publishing data showing that the Bank's failure to bring price rises under control has had little effect on sector wage increases.

EEF said that over the three months to the end of May, the averaging manufacturing company pay settlement was for a pay increase of 2.6 per cent, barely up on the 2.5 per cent seen over the previous three months. While there was a small increase in the number of deals where staff negotiated pay increases of more than 3 per cent, one in seven settlements saw pay frozen at last year's levels.

The data is important because the Bank of England's monetary policy committee has been closely scrutinising wage data for signs that continuing above-target inflation – 4.5 per cent in May on the consumer price index measure – is beginning to feed through into higher pay demands.

The fact that there is little evidence of that happening in the manufacturing sector, which has been one of the best-performing parts of the economy, will relieve policymakers who have been criticised by inflation hawks for failing to raise the cost of borrowing in order to deal with inflation.

Lee Hopley, EEF's chief economist, said that while wage settlements were now beginning to increase, they were only returning to levels seen before the recession. "Despite the continued upward curve of pay settlements, we are only continuing a return to levels we would expect to see in relatively normal economic conditions," Ms Hopley said. "While some companies are under pressure to give higher settlements, it is clear that the vast majority are under equal competitive pressure to maintain tight control of their internal costs."

John Morris, the chief executive of JAM Recruitment, which helped EEF compile the figures, said they should also provide reassurance that the manufacturing sector's recovery – which some analysts had feared might be waning – was continuing, with new jobs being created.

"The average pay settlement is now three times what it was in March 2009 and is slowly but steadily climbing towards the 3 per cent mark, suggesting growing strength in the sector," Mr Morris said.

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