Pay deals pave way for rate cut

New evidence that inflation-busting pay deals such as those at Ford and Vauxhall are the exception rather than the rule will clear the way for Chancellor Kenneth Clarke to cut interest rates as expected early next month. Pay settlements have levelled off according to industry surveys, easing concerns that higher wages could fuel inflation.

However, harmonised inflation figures due to be published by the EU Commission on Thursday could come as an unpleasant irritant to the Chancellor. The figures will show British inflation measured on the same basis as other countries to be higher than the headline rate.

The Engineering Employers' Federation reports in its Pay Bulletin today that settlements in January averaged 3.4 per cent, the same as the average rise in December.

David Yeandle, head of employment affairs for the EEF, said: "Engineering pay settlements in the key month of January show fears of a pay and prices spiral in 1996 are not justified by events." The trend in pay had been flat since late summer, he said. This followed a gradual increase in 1994 and earlier last year.

There were 275 agreements reported so far in January, which accounts for nearly a third of annual settlements. Just over half involved awards of between 3 and 4 per cent.

The engineering figures followed a report that nearly two-thirds of the 160 private sector deals monitored so far this year by independent pay analysts Incomes Data Services lay between 3 and 4 per cent. This was similar to December's pattern of settlements.

The IDS report sounded a note of caution about cost pressures. It said few pay deals were lower than 3 per cent. Retail price inflation fell to 2.9 per cent last month, meaning that almost all the deals were ahead of inflation.

The Governor of the Bank of England, Eddie George, expressed concern about pay deals around the turn of the year. But the Bank's recent Inflation Report was optimistic, saying lower inflation in the coming months might help ease pay pressures.

European Commission calculations of retail prices on a consistent basis for all member countries, due on Thursday, form a small cloud on the inflation horizon. Economists at investment bank Kleinwort Benson predicted the figures would come as an unpleasant surprise to financial markets.

The EU measures exclude components such as housing and insurance where national definitions of the retail price index vary widely. They are expected to show British inflation of 3.2 per cent in January compared with the headline figure of 2.8 per cent for the Government's target inflation measure, as insurance costs have fallen sharply in Britain during the past 12 months. By contrast, Germany's "harmonised" inflation is likely to be lower than its published rate, at 1.3 per cent rather than 1.5 per cent.

Start your day with The Independent, sign up for daily news emails
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Digital Optimisation Executive - Marketing

£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

Recruitment Genius: Financial Reporting Manager

£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Day In a Page

Syria civil war: Meet the military commander who says his soldiers will not rest until every inch of their war torn country is free of Islamist 'terrorists'

‘We won’t stop until Syria is back to normal’

Near the front lines with Islamist-controlled towns where Assad’s troops were besieged just last month, Robert Fisk meets a commander confidently preparing his soldiers for battle
The inside story of how Bill Clinton built a $2bn global foundation may undermine Hillary's chances

The inside story of how Bill Clinton built a $2bn global foundation...

... and how it may undermine Hillary's chances in 2016
12 best olive oils

Extra-virgin, cold-press, early-harvest, ultra-premium: 12 best olive oils

Choosing an olive oil is a surprising minefield. Save yourself the hassle with our handy guide
Rafa Benitez Real Madrid unveiling: New manager full of emotion at Bernabeu homecoming

Benitez full of emotion at Bernabeu homecoming

There were tears in the former Liverpool manager’s eyes as he was unveiled as Real Madrid coach. But the Spaniard knows he must make tough decisions if he is to succeed
Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at long last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)
Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

Wiggins worried

Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?