Pay settlements may have stopped falling

PAY settlements may be bottoming out, having dropped steadily over the past two and a half years, figures from the Confederation of British Industry suggest today.

Manufacturing pay settlements averaged 2.3 per cent in the three months to June, according to the CBI's pay databank survey.

This was a little higher than in the three months ending in April or May, but down slightly on the first quarter of the year. In the year to the end of July, one in five manufacturing settlements was a pay freeze, with two- thirds of manufacturing employees settling at less than 3.5 per cent. Between April and June about one in three manufacturers and one in four service companies settling introduced pay freezes.

But pay is continuing to rise more quickly than prices. Inflation in the year to June was 1.2 per cent, with official figures on Wednesday expected to show a slight tick up in the year to July.

Pay is also being outstripped by growth in productivity - output per person employed. This means unit labour costs have continued to fall, helping to offset higher costs for imported raw materials. The CBI reported that manufacturing productivity grew 3.8 per cent in the year to the second quarter, with slightly higher productivity growth of 4.8 per cent expected in the coming year.

Service sector pay settlements have changed little this year, averaging about 2.9 per cent. The CBI figures contrast with those published by the Department of Employment, which show that earnings growth in the service sector has fallen sharply this year. This is because the department's figures include public sector settlements.

A survey of finance directors carried out by 3i, the investment capital group, found considerable confidence that Britain would continue to hold its own or narrow the productivity gap with international competitors. More than two-thirds said the benefits of last year's devaluation of sterling would be maintained.

Inflation risks, page 23