Manufacturing competitiveness falls to five-month low

Manufacturing industry's competitiveness fell to a five- month low in August, suggesting that looser control of costs may already be helping to push inflation higher, writes Robert Chote.

Unit labour costs in manufacturing - the amount spent on wages to produce each unit of output - rose by 0.9 per cent in August, more than reversing July's improvement, according to the Department of Employment. Labour costs are an important measure of competitiveness.

Unit labour costs were still 0.6 per cent lower in August than a year earlier. Recent falls in labour costs have helped to keep inflation subdued since the pound devalued in September 1992, helping to offset the higher cost of imports resulting from the pound's fall.

Productivity in manufacturing - output per worker employed - fell back slightly in August after rising more strongly in July. Productivity grew by 4.4 per cent in the year to August, down from 5.6 per cent in the year to July.

Average earnings grew by an underlying 3.5 per cent in the year to August, unchanged from the year to July. Average earnings growth has halved since April last year, but the Department of Employment believes it is near its trough.

Earnings growth in manufacturing edged down to 4.75 per cent, after running at 5 per cent for the preceding six months. Earnings growth in services was unchanged at 2.75 per cent, pulled down in part by last year's 1.5 per cent ceiling on public-sector pay settlements.

Settlements in August included 3.5 per cent for 10,000 Scottish print workers, down from 4.26 per cent last year. Five thousand food workers settled at 2.7 per cent, down from 4.5 per cent.