Accelerating pay deals put pressure on interest rates

PAY awards are continuing to surge ahead, putting further pressure on interest rates, according to a survey today by the Confederation of British Industry. It shows accelerating pay deals across most sectors of the economy, with manufacturing settlements averaging rises of 3.8 per cent in the three months to December, up from 3.5 per cent the previous month and 3.1 per cent a year ago.

Pay awards from service companies are growing at a quicker rate, up from 4.2 per cent in the three months to November to 4.5 per cent in December. The figures appear to vindicate the Bank of England's hawkish view on inflation last week, warning that generous pay increases made further interest rate rises likely.