Pay deals stay high as growth tails off

PAY AWARDS are showing few signs of slowing down in spite of growing signs that higher interest rates and the strong pound are putting the brakes on economic growth.

Two comprehensive surveys of recent pay deals, due out today, show that average pay awards are still in the 3-4.5 per cent bracket. The data is likely to raise fears that the Bank of England's Monetary Policy Committee may be tempted to raise interest rates when it meets next.

Both studies - by the Confederation of British Industry and Incomes Data Services, the consultancy - point to a powerful two-way pull on pay settlements. While slowing economic growth is prompting employers to temper their awards, they are also under pressure to make sure earnings keep up with rising living costs.

Further evidence of slowing economic growth is likely to emerge this week with figures from Trade Indemnity, the credit insurance group, showing that in the three months to June more orders were cancelled than new ones placed.

The CBI study shows that in the three months to July, manufacturing pay settlements edged up slightly to an average of 3.7 per cent, compared to 3.6 per cent in the three months to April and 3.1 per cent in the same period last year. This rise is in spite of repeated complaints from manufacturers that the strength of sterling, brought on by higher interest rates, is causing a recession.

Pay deals in the services industry are also on the rise. The CBI found the average pay award rising to 4.5 per cent in the period to July, up from 4.1 per cent in April. Companies said cost of living increases and the need to keep staff were behind the rise.

Meanwhile, IDS found that pay awards were clustered in the 3-4.5 per cent range in the Spring and Summer. A typical example was Boots the Chemists, where staff received an average 3.75 per cent pay rise. However, it concludes that the conflicting pressures of rising inflation and slowing growth are affecting pay rates.

The figures will raise fears that the economy is slipping into a period of "stagflation" which combines rising inflation with slowing growth. They may provide further ammunition for the Bank to keep interest rates high. When the MPC raised rates in June, it argued that earnings growth was incompatible with its long-term inflation target of 2.5 per cent.

At the time, the Bank suggested that earnings growth would have to fall below 4.5 per cent in order to be sustainable. The most recent official figures showed headline earnings growth falling to 5 per cent in May from 5.4 per cent in the previous month.

The CBI says 43 per cent of the respondents cited an inability to raise prices as providing a drag on pay settlements. However, 41 per cent said the rising cost of living was keeping pay deals high.

The figures come at the beginning of a key week for UK economic statistics. On Tuesday, the Retail Prices Index figures for July are released. Those statistics are followed by retail sales data for July on Wednesday and second quarter Gross Domestic Product figures on Thursday.

Start your day with The Independent, sign up for daily news emails
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Life and Style
techPatent specifies 'anthropomorphic device' to control media devices
Voices
The PM proposed 'commonsense restrictions' on migrant benefits
voicesAndrew Grice: Prime Minister can talk 'one nation Conservatism' but putting it into action will be tougher
News
Ireland will not find out whether gay couples have won the right to marry until Saturday afternoon
news
News
Kim Jong-un's brother Kim Jong-chol
news
News
Manchester city skyline as seen from Oldham above the streets of terraced houses in North West England on 7 April 2015.
news
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

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Neil Pavier: Management Accountant

£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

Sheridan Maine: Commercial Accountant

£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

Laura Norton: Project Accountant

£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

Day In a Page

Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine
Letterman's final Late Show: Laughter, but no tears, as David takes his bow after 33 years

Laughter, but no tears, as Letterman takes his bow after 33 years

Veteran talkshow host steps down to plaudits from four presidents
Ivor Novello Awards 2015: Hozier wins with anti-Catholic song 'Take Me To Church' as John Whittingdale leads praise for Black Sabbath

Hozier's 'blasphemous' song takes Novello award

Singer joins Ed Sheeran and Clean Bandit in celebration of the best in British and Irish music
Tequila gold rush: The spirit has gone from a cheap shot to a multi-billion pound product

Join the tequila gold rush

The spirit has gone from a cheap shot to a multi-billion pound product
12 best statement wallpapers

12 best statement wallpapers

Make an impact and transform a room with a conversation-starting pattern
Paul Scholes column: Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?

Paul Scholes column

Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?