Continued moderation in pay settlements provides further evidence that inflation is well under control, but the Government is likely to be buffeted this week by more signs that the economy remains mired in recession.
Figures due on Thursday are expected to show that industrial production fell 0.2 per cent in June.
The recession has seen a sharp fall in pay settlements, which have more than halved since late 1990. Lower settlements are feeding through to a slowdown in average earnings growth.
Average earnings grew by an underlying 6.5 per cent in the year to May and the Department of Employment is expected to announce a drop to 6.25 per cent for the year to June on Thursday.
The CBI said that with managers estimating that productivity - output per person - was continuing to grow at 3.2 per cent a year, 'settlements in manufacturing are now largely self-financing and not adding to inflationary pressure'.
Managers estimated that productivity was growing at 3.5 per cent in the first quarter of the year. 'But, with major overseas competitors containing unit labour costs even better, firms may need to look for faster productivity growth while keeping a firm hold on their labour costs,' the CBI said.
The survey suggests that manufacturing settlements vary widely from firm to firm without a clear 'norm' being established. Only one in five pay settlements has been above 5.5 per cent since August last year.
In service sector companies pay settlements also averaged 4.3 per cent in the first half of 1992 compared with 6 per cent in the second half of last year.
Pay settlements in services and manufacturing are in line with rises in retail prices. Official figures due on Friday are expected to show the retail price index unchanged in July, with the annual rate of inflation climbing from 3.9 to 4.1 per cent.
The annual rate of factory gate inflation, published on Tuesday, is forecast to show a fall from 3.6 to 3.5 per cent in the same month.
Retail prices have been restrained by stagnant trade on the high street. A survey from Infolink, the credit information organisation, shows that consumers' demand for credit continues to fluctuate, with 'no sign of a consistent recovery in spending confidence'.
Demand for credit in June was lower than a year earlier for home loans, car purchases and finance house credit, while retail credit was virtually unchanged.
Official credit business figures, published today, are expected to show another small repayment of consumer debt in May.
The Department of Employment is also expected to announce on Thursday that regional disparities in unemployment have continued to narrow. The national jobless total is expected to have risen by 25,000 in July following June's unexpectedly small increase of 7,000.Reuse content