Pay settlements rise, fuelling inflation fears

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EVIDENCE emerges today that ministers could be losing the battle to break the link between pay and inflation. Research shows that after months of stability, wage settlements are moving up in the wake of price rises. The mounting pay pressure is also being fuelled by the impact of Budget tax increases, according to Industrial Relations Services.

Provisional analysis by IRS of 1,000 wage deals shows that pay rises edged up from 2 per cent in the three months to December to 2.5 per cent in the quarter to January - this was the first significant movement since last August. From a different sample, the rival research group Incomes Data Services reported an upward shift in increases to between 2 and 3.5 per cent.

The wage round has entered a critical phase. Around a quarter of settlements took effect in January and two-thirds of pay reviews are to be completed by the end of April.

The IRS report warns that the findings 'may signal a return to a familiar pattern - pay pressures being driven upwards in the wake of rising prices - which would frustrate the Government's desire to break the link between pay and inflation'. The sudden movement in wages coincides with a rise in the all-items retail price index to 2.5 per cent in the year to January, from 1.9 per cent in December 1993.

Half of the settlements recorded by IRS in the three months to January gave increases of between 2 and 2.9 per cent. Nearly a quarter were worth more than a year earlier.

The researchers say that some of the upward movement can be attributed to the small number of public-sector agreements in the analysis, although private-sector deals are also showing signs of picking up - 2.5 per cent in the three months to January from 2.3 per cent in the quarter to December.

Directors' confidence is continuing to rise but the improvement in business activity stalled in the first two months of the year, the Institute of Directors business opinion survey has found. Optimism about company prospects increased.

Peter Morgan, the IOD's director general, said: 'The recovery is continuing but is muted.'

Three-quarters of retail financial services companies continued to raise salaries over the past two years, says a study by KPMG Peat Marwick and the University of Bristol.

The Institute for Public Policy Research said in the past 13 years average working hours in Britain have increased after a downward trend lasting 120 years. The author, Paul Gregg, calculates that if hours had declined in line with historical experience, there would be one million more people in work today.