Pay settlements put no pressure on Bank to raise rates, says CBI

Pay settlements remain subdued, reinforcing the case for interest rates to be kept on hold, the CBI said today.

Pay settlements remain subdued, reinforcing the case for interest rates to be kept on hold, the CBI said today.

The results of the latest pay survey by the employers' group show there is little inflationary wage pressure in either the service or the manufacturing sectors. Settlements among service sector companies are lower as a result of the general economic slowdown and although awards by manufacturing companies are rising, they still remain at low levels.

That, the CBI said, was further evidence inflation was "well under control", strengthening the argument for the Bank of England to leave interest rates on hold in the short term. The minutes of the Bank's June meeting are published on Wednesday and will show whether there is growing support for a rate rise on the MPC.

The CBI pay databank report found that the service sector has scaled back wage settlements, with awards falling to an average of 3.4 per cent in the three months to April.

That compares with 4 per cent in the three months to January and 3.9 per cent a year ago and follows the economic slowdown affecting large parts of the service sector at the beginning of the year, the report said.

Meanwhile, manufacturing wage settlements have edged up slightly from the record lows seen after 11 September. Awards averaged 2.7 per cent in the three months to April, up from the 2.3 per cent seen in the three months to January – the lowest figure in the survey's 22-year history – but still less than the 2.9 per cent seen in the three months to April last year.

Factors pushing up pay in the manufacturing sector included the need to recruit and retain skilled staff combined with rising cost of living.

Ian McCafferty, the CBI's chief economic adviser, said: "The pay gap between the two sectors is narrowing. However, this reflects a cooling in large parts of the service sector, rather than a rapid bounce-back in the fortunes of manufacturing." Despite the gap narrowing, the CBI said manufacturers remained under more pressure than their service sector counterparts.