Earnings growth at risk from a slow economy

THE LATEST pay deals suggest that the slowdown in the economy is starting to trim earnings growth, according to the latest assessment from the consultancy Incomes Data Services. But the study adds that settlements for low-paid workers in anticipation of the minimum wage and the new working time regulations are adding to employers' pay bills.

The signs that pay settlements started to tail off in January, one of the most important months for private sector bargains, will be seen as justification for the Bank of England's surprise decision to cut a half point off interest rates last week. The consultancy's quarterly Inflation Report, published this Wednesday, is expected to conclude that inflationary pressures have receded.

Figures due today are expected to confirm the weak state of the manufacturing industry, and the absence of any inflation at the factory gate.

The IDS report says: "While 3 to 4.5 per cent remains the going range for the bulk of settlements, a greater proportion of the January deals are in the lower end of this range."

Of the 93 new pay deals reported, 52 were worth between 3 and 3.9 per cent, and 36 between 3 and 3.4 per cent.

On the other hand, a few deals covering large numbers of workers were worth more than 4 per cent. These included the settlement at Nissan in Sunderland, covering 4,500 employees.

The report concludes that the economic slowdown is having a clear impact in some sectors, such as engineering and electronics. For example, employees at Philips received a low increase, while the Engineering Employers' Federation reported an average settlement of 2.6 per cent in the industry.

However, in sectors like information technology and construction pay pressures remain strong because of skill shortages.

In addition, there were higher increases for groups of low-paid employees as pay rates are adjusted ahead of the introduction of the minimum wage in April. Into this category came a 5.6 per cent, two-stage pay rise for 78,000 textile workers to reach the pounds 3.60 an hour minimum by 1 April.

5 IDS Report, February 1999: For a copy, telephone 0171-250 3434 or see the Internet at www.incomesdata.co.uk.