Pay rises starting to move ahead of inflation

Rising inflation is fuelling an acceleration in pay rises, with key companies agreeing increases considerably higher than the growth in the Retail Price Index, according to research published today.

At a time when the headline monthly inflation rate stood at 2.9 per cent, engineering and clerical workers at BT recently won a 4.3 per cent increase, staff at Bank of Scotland an average 4.7 per cent and Rover Group employees 4.5 per cent. Staff at Marks & Spencer are to receive a rise of 3.5 per cent from July, which will be supplemented by an additional 1 per cent in October to be distributed among staff on merit.

The deals are bound to have an impact on other influential groups of workers, including those at Ford, whose leaders are due to submit a claim for a substantial pay increase this week. Research group Incomes Data Services believes the negotiations at Ford, which begin in earnest in November, may be especially fraught.

With the latest RPI figure now standing at 3.3 per cent and forecast to go higher, the most powerful employees will be seeking increases of 5 per cent or more - aspirations which will cause considerable concern among ministers.

Well over half of settlements in recent weeks have given rises in the 3 to 4 per cent range, according to IDS. Some 140,000 police officers, for instance, will today receive a pay rise of 3.5 per cent as dictated by their automatic pay formula. For those with pay review dates from 1 July onwards, just over a quarter of settlements have raised pay rates by 4 per cent or more.

In its latest IDS Report, the research group says the signs of a pick- up in wage rates may be due to a combination of factors, including higher inflation, falling unemployment, the four successive rises in mortgage rates since May and the strict fiscal measures taken in the Budget.

The study points out that the drop in unemployment has produced extremely tight labour markets in some areas, leading to acute skill shortages, especially in construction and information technology.

* IDS Report 744, published by Incomes Data Services, 77 Bastwick Street, London EC1V 3TT.