The Sterling Crisis: Salary increases outstrip inflation: Pay rises

PAY RISES are consistently topping the rate of inflation and are likely to follow any change in the retail price index, according to a study of expected wage patterns over the next 12 months, published yesterday.

The level of salary increases dropped by more than half since the beginning of 1991 as inflation fell rapidly to about 4 per cent. The current retail price index (RPI) of 3.6 per cent is matched by average wage rises of between

4 and 5 per cent.

Any increase in the cost of living will almost certainly be shadowed by a similar rise in earnings, Incomes Data Services, a pay specialist company, says.

'We do not share the current CBI (Confederation of British Industry) view that there has been a significant change in pay bargaining behaviour.

'The CBI believes the link between pay increases and inflation has been broken. Indeed, if anything, the link has been stronger over the past year as the lower inflation rate has helped to reduce expectations,' it says.

Several companies, including British Airways, Kelloggs and Ford, have pay rises linked to inflation, while the 'going rate' in recent months has been in line with the RPI at about 4 per cent.

Although the average pay rise across the economy has been stable and slightly above inflation, there has been considerable variation between industrial sectors.

Engineering, printing, consumer electronics and road haulage have all been badly hit by the recession and have seen lower pay rises and the imposition of wage freezes. Settlements in chemicals and in food, drinks and tobacco have averaged above 4 per cent with freezes extremely rare. Deals in finance and retailing have spanned all levels of increase.

Although wage freezes have been used, Incomes Data Services predicts less use of the mechanism in 1993, particularly if inflation remains at a low level.

'Several times over the past year we thought that the incidence of pay freezes might be declining, but each time this has not been so, because industrial confidence has been on a roller-coaster, with several false dawns for economic recovery. Very low inflation in 1993 may mean fewer firms are forced into freezes - 2.5 per cent may be affordable, where 5 per cent might not.'

Predicted influences on wage and salary bargaining over the next 12 months include poor labour mobility because of the stagnant housing market, a rise in profit-related pay with the promise of extra money in better times, and the continued extension of merit or performance-related pay.

The Government is expected to find it difficult to restrain the public sector salary bill with so many groups tied to pay review bodies.