Pay growth steady as inflation continues to fall

Posted on 18 Feb 2015 by Victoria Fitzgerald

The average pay settlement reported in manufacturing in the three months from November to January was 2.3%, unchanged from the three months to December according to the latest data from EEF.

CPI inflation projection based on market interest rate expectations and £375bn assets, courtesy of EEF.
CPI inflation projection based on market interest rate expectations and £375bn assets, courtesy of EEF.

Average pay settlements in manufacturing have been running ahead of inflation across the economy for 16 consecutive months, although the average deal of 2.3% in the major January pay round was fractionally down on the 2.4% – 2.6% range reported by manufacturers since early 2011, this reflects the weaker inflation outlook and tempered growth expectations for the year ahead.

Pay deals agreed in the 1.76-2% range were the most common over the past three months, covering 27% of settlements and 38% of employees.

EEF’s Pay Bulletin notes that the proportion of pay freezes, which have been declining since mid-2013, fell to their lowest level since November 2007, indicating the vast majority of manufacturing employees are benefiting from more widespread growth across the sector.

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As this data includes settlements for one of the year’s major pay rounds, this is likely to set the tone for pay this year.

Ms Lee Hopley, chief economist at EEF said: “Manufacturing employees continue to see real wage growth going into 2015, with the pace of pay growth deviating little from the trends seen in the past few years.

“The near disappearance of pay freezes in our survey also has to be good news. Affordability, skills recruitment and retention and some catch up from previous pay restraint have been the main settlement drivers for manufacturers rather than chasing down the falling rate of inflation.”

The survey is based on 167 companies and 31,399 employees in the UK.