Rising pay pressure brings threat of boost to inflation: Private sector settlements stop falling

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PAY settlements have stopped falling and the number of pay freezes and pay pauses is dropping, according to the latest analysis of labour market trends by Incomes Data Services.

Private sector pay rises have been concentrated between 2 and 4 per cent in the past three months, the study says. But public sector settlements have been constrained by the Government's 1.5 per cent limit, which IDS reports is 'generally sticking.'

IDS said some companies were still implementing pay freezes, but that this was much less frequent than at the beginning of the year.

Pay settlements have therefore continued to outstrip inflation, currently running at about 1.4 per cent, and have not fallen since the spring.

Subdued wage increases have been the main reason why inflation has fallen since Black Wednesday, during which time a lower pound has put upward pressure on import prices.

But rising pay settlements, which on past form will be accompanied by an upturn in the annual growth rate of average earnings, may reinforce the acceleration in headline inflation that City analysts expect to take place in the coming year.

The IDS's analysis included a 4.75 per cent merit award for staff at Scottish Equitable and a 4 per cent performance-related rise for 7,000 employees at Guardian Royal Exchange, the insurance group.

Employees at the drug giant Glaxo will get 3.5 per cent while more than 800 manual workers at its rival Zeneca received a 6 per cent increase.

At East Midlands Electricity, 5,000 workers gained a 2.4 per cent rise, while 3,000 workers at White Arrow Express, the distribution arm of Great Universal Stores, will get 3.3 per cent under another profit-related scheme.

In the public sector, London Underground, British Rail and BBC workers have all recently taken increases of 1.5 per cent.

Management salary deals averaged 3 per cent between May and July, unchanged on the previous three months. Management awards have been falling since 1990 but the report said this was now ending.

'This steadying of management awards over the last six months may indicate that pay pressures on companies are easing as a result of improved economic expectations', IDS said.

Professor Doug McWilliams, economic adviser to the Chartered Institute of Marketing and former chief economist of the Confederation of British Industry, has warned that companies have to keep a tight lid on costs to remain competitive, in large part by putting pressure on their suppliers to cut costs too. Professor McWilliams is forecasting the economy will grow by 2 per cent this year, but said the risk of resurgent inflation appears to be diminishing.

----------------------------------------------------------------- Table: Private sector pay ----------------------------------------------------------------- Increase (%) No. of deals, 1993 April to July to June Sept Pause/freeze 22 4 0.1-1.9 26 6 2.0-2.9 109 13 3.0-3.9 97 25 4.0-4.9 23 8 5.0+ 6 2 Total 283 58 ----------------------------------------------------------------- Source: IDS -----------------------------------------------------------------