Manufacturing sector's pay rises remain low

Pay rises in the manufacturing sector are flattening out at pre-recession levels, according to figures due to be published today.

The latest data – showing average pay settlements of between 2 per cent and 3 per cent – gives the lie to fears that target-busting inflation rates will lead to spiralling wage demands, according to the EEF, the manufacturers' trade group, and JAM Recruitment, which compiled the report. Average pay settlements remained flat at 2.5 per cent in the three months to the end of June.

While the proportion of wage deals agreed at more than 3 per cent continued to rise – accounting for nearly one in five settlements – almost a quarter of agreements are less than 2 per cent. And 12 per cent of cases are still subject to pay freezes, the research says.

Muted wage growth, levelled out below the long-term range, reflects economic realism amongst both manufacturing employers and their staff, according to Lee Hopley, the EEF's chief economist. "Whilst there is undoubted pressure to give higher settlements, there is an equal dose of realism amongst companies and their employees in response to economic uncertainty and competitive pressures," Ms Hopley said.

Pay restraint in the manufacturing sector is further good news for the Bank of England, on the heels of last week's unexpected fall in inflation. The Bank's Monetary Policy Committee (MPC) has faced pressure to raise interest rates from the all-time low of 0.5 per cent because of 19 consecutive months of inflation exceeding the 2 per cent target. But even after last month's slight fall, the Consumer Price Index was still running 4.2 per cent, and Retail Price Inflation at 5 per cent.

"As far as manufacturing is concerned at least, the Bank of England has little to fear from wage-inflationary pressures," Ms Hopley said. But the caution may not be entirely good news – reflecting dipping optimism about the sector's prospects.

In the aftermath of the sharp de-stocking seen in the financial crisis, manufacturing was roaring ahead of the rest of Britain's anaemic economic recovery. But confidence has taken a severe knock, with a closely watched index last week recording manufacturers' optimism at its lowest level for two years, against the backdrop of sluggish domestic demand, the eurozone crisis and a slowing of the global recovery.

John Morris, the chief executive of JAM Recruitment, said: "In an economy that is still by no means fully recovered, and with margins still tight, the future challenge for employers is how to factor in the cost of employing the talent they need, and keeping it."