Pay growth remains well below inflation

Private sector pay remains stagnant in the midst of continuing sluggish economic conditions, research finds.

The VocaLink Take Home Pay Index, which is a measure of pay growth in the FTSE 350, remains unchanged this month sitting at 2.6 per cent in the three months to December 2011, and well below the 4.8 per cent consumer price index inflation.

Meanwhile, public sector take home pay growth continues to sit at a lower growth rate than the private sector, at 2.0 per cent for the corresponding period.

Both the public and private sector growth rates remain unchanged compared to the three months to November, suggesting that the impact of elevated unemployment and sluggish economic growth will continue into 2012.

With further public sector job losses expected over the coming years, and a tough trading environment for many private sector businesses, the stagnant figures raise questions over whether labour market conditions and therefore pay growth are likely to improve significantly in the short term.

Manufacturing take home pay growth fell 0.5 percentage points over the three months to December to stand at 3.6 per cent. Since February 2011, annual take home pay growth in the manufacturing sector had been on an upward trend, hitting 4.1 per cent for the three months to November.

Douglas McWilliams, chief executive of economics consultancy Cebr says, ‘This month’s Index shows that across all sectors, we are a long way short of pre-recessionary pay growth figures. The latest forecasts by the Office for Budget Responsibility suggest that the unemployment rate is likely to rise from its current level of 8.3 per cent to 8.7 per cent in the final quarter of 2012 – suggesting that pay settlements will, on average, struggle to return to typical pre-recession levels in the short-term.

‘Although a fall back in inflation in 2012 is likely to provide some financial respite for households – in conjunction with a further increase in Income Tax free personal allowances – the weak economy will continue to bear down on living standards in the UK this year.’

Ben Lobel

Ben Lobel

Ben Lobel was the editor of and from 2010 to 2018. He specialises in writing for start-up and scale-up companies in the areas of finance, marketing and HR.

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