Wage inflation data to alert MPC hawks

The recent surge in inflation is starting to push up wage deals, according to research today that will worry that hawks on the Bank of England.

The average level of pay settlements has risen to 3.5 per cent so far in the second quarter of the year from 3 per cent in the first three months of 2003, Incomes Data Services said.

Inflation is running at 3.2 per cent, its highest level for two years, and many analysts have warned that it could rise further.

The latest minutes of the Bank's monetary policy committee, which sets interest rates, show some members are worried about the long-term impact on the rise in inflation on workers' expectations.

IDS said the picture remains mixed with pay freezes still being imposed in parts of manufacturing and the highest increases being agreed in construction. Building workers have won deals of around 5 to 7 per cent on the back of last year's construction boom, which was the largest since the peak year of 1988.

An industry-wide award for plumbers in Scotland and Northern Ireland topped the table with a 7.3 per cent award, while construction engineers won 5.5 per cent.

In manufacturing a minority of companies is deferring pay reviews and implementing pay freezes in a response to tough trading conditions, it said.

The second quarter is very important for public sector pay reviews, with major groups such as schoolteachers in England and Wales and local government employees having April review dates. Results so far in the second quarter show median private sector deals slightly ahead of those in the public sector, which would reverse the trend of the recent months.