Pay awards add to rate rise pressure

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The Independent Online

The level of pay deals struck in the key bargaining month of January has surged to a six-year high, according to the latest report to highlight mounting inflationary pressures.

The level of pay deals struck in the key bargaining month of January has surged to a six-year high, according to the latest report to highlight mounting inflationary pressures.

The average basic pay award between November and January jumped to 3.3 per cent, the highest since December 1998 and ending a record 22 months of stability at about 3.0 per cent, Incomes Data Services said.

The pay analysis firm said more than six out of 10 pay settlements were higher than those agreed in the same quarter a year earlier. Its survey, which covered 114 firms employing 130,000 people, found pay was driven up by deals at private sector services firms.

The report is the latest to point to a marked rise in pay deals after the surge in headline inflation from 2.5 per cent a year ago to a six-year high of 3.5 per cent in December.

Sheila Attwood, the editor of IRS Pay and Benefits, said an expected fall in inflation should prevent further surges in earnings growth this year.

Headline inflation fell last month to 3.2 per cent and IRS expects it to hit 2.6 per cent by the end of the year. "It seems most unlikely that the recent upturn in settlements will be sustained," she said.

However the survey is likely to ring alarm bells at the Bank of England. Yesterday Rachel Lomax, a deputy governor of the Bank, became the latest member of its Monetary Policy Committee to reveal worries about rising inflation, saying the Bank might have to take "pre-emptive action".

"We think there is very little slack in the economy," she told an audience of business leaders in Liverpool. "The labour market is certainly tight. But the growth in labour costs has been surprisingly muted and some cost pressures have been absorbed by lower profit margins. How long can this last?"

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